STRATEGIC ENFORCEMENT, INTELLECTUAL PROPERTY RIGHTS, AND CONTRACTUAL R&D

This study examines the role of intellectual property rights ( IPRs) in contractual research and development ( R&D) in developing countries. We find that strong IPRs provide incentives for firms, both multinational and local, to specialize in R&D activities in which they have competitive advantage ( the specialization effect). They also facilitate the switching process from imitators to potential innovators for local firms ( the switching effect). Moreover, we also demonstrate that a multinational firm's strategic IPRs enforcement behavior can be an effective instrument for subsidizing contractual R&D in developing countries ( the subsidizing effect). We further illustrate how a policy mix of IPRs and a foreign direct investment subsidy in these countries affects R&D activities by adding an offshore R&D subsidiary as an additional organizational form.