Intellectual Property Protection and US Foreign Direct Investment in Emerging Economies

Do intellectual property rights (IPR) affect foreign direct investment (FDI) into emerging economies? While conventional wisdom supports a strong IPR-FDI relationship, the empirical evidence is both mixed and suffers from several shortcomings. To help resolve this paradox, this article investigates the effects of IPR on US FDI in 22 emerging economies using data from 2006 to 2008. It tests two competing, independent measures of IPR protection, as well as disaggregated FDI data to investigate the effects of IPR protection on investments across nine industries economy-wide, and across eight sectors within the manufacturing industry. The empirical results consistently fail to support the hypothesis that IPR protection strongly affects advanced country FDI into emerging economies. Therefore, developing countries may have considerable leeway in IPR design and enforcement; IPR regimes can be tailored to fit a developing country's domestic socio-economic and cultural conditions without affecting it as a destination for foreign investment. IPRs are not an end-in-themselves, rather they are a means by which to increase investment in innovative activity; they should therefore be designed and enforced with this goal in mind.