Does intellectual property rights protection affect UK and US outward FDI and earnings from FDI? A sectoral analysis

Abstract

PurposeDespite decades of research, the relationship between intellectual property rights (IPRs) and foreign direct investment (FDI) remains ambiguous. Using a recently developed patent enforcement index (along with a broader IPR index) and a large sectoral country-to-country FDI dataset, the authors revisit the FDI-IPR relationship by testing the impact of IPRs on UK and US outward FDI (OFDI) flows as well as earnings from outward FDI (EOFDI).Design/methodology/approachThe authors use disaggregated data for up to 9 distinct sectors of economic activity from both the US and UK for OFDI flows and EOFDI, for a panel of up to 42 developed and developing countries over sample periods from 1998 to 2015. The authors employ a panel fixed effects (FE) approach that allows exploiting the longitudinal properties of the data using Driscoll and Kraay's (1998) nonparametric covariance matrix estimator.FindingsThe authors do not find any consistent evidence in support of the hypothesis that countries' strength of IPR protection or enforcement affects inward FDI, or that sector of investment matters. The results prove robust to sensitivity checks that include an alternative broader measure of IPR strength, analyses across sub-samples disaggregated according to the strength of countries' IPRs as well as developing vs developed economies and an extended specification accounting for dynamic effects of the response of FDI to both previous investment levels and IPR (patent) protection.Originality/valueThe authors make use of the largest most granular sectoral country-to-country FDI dataset employed to date in the analysis of the FDI-IPR nexus with disaggregated data for OFDI and EOFDI across up to 9 distinct sectors of economic activity from both the US and UK The authors employ a more sophisticated measure of IPR strength, the patent index proposed by Papageorgiadis et al. (2014), which places emphasis on the effectiveness of enforcement practices as perceived by managers, together with the overall administrative effectiveness and efficiency of the national patent system.

Do intellectual property rights promote foreign direct investment inflows and technological exports in developing and developed countries?

“…Chen (2021b) included that the production pattern leads to strengthening the protection of INPR and thus increasing the long-term scope of FDI. Glauco et al (2021) indicated that the measure of intellectual property strength is extended for dynamic effects of the response of FDI to both previous investment levels and patent protection. Xu et al (2020) that regional R&D input has a positive impact on the sustainable patent output of small-and medium-sized enterprises (SMEs).…”

Intellectual property rights policy and foreign direct investment: A quasi‐natural experiment from China

“…In contrast, IPRs alone may insufficiently strong incentives for transnational corporations to invest in a country due to more important factors influencing transnational corporations' FDI decisions (Maskus, 1998; Pi & Song, 2020). Glauco et al (2021) used patent enforcement index and intellectual property index to study the impact of IPR on FDI of USA and OFDI of UK adopting the fixed effects demonstration. They found that national intellectual property protection has little impact on FDI.…”