The effect of patent enforcement strength and FDI on economic growth

Abstract

The level of effectiveness of patent enforcement in a country's patent system is a key area of focus in recent international trade negotiations, such as the Trans-Pacific Partnership Agreement. Since the implementation of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement by most developed and developing countries, the focus of such international negotiations has now shifted from expanding provisions related to patent law protection towards provisions that can enhance the effectiveness of patent enforcement in negotiating countries. While these policy-making efforts are driven by an inherent assumption that stronger levels of patent enforcement will positively affect international trade and boost economic growth for countries adopting such reforms, there is currently no empirical evidence to support or oppose this assumption. This paper studies the effect of the strength of patent enforcement on the economic growth of 42 developed and developing countries in the post-TRIPS years 1998-2011, as well as the role of inward foreign direct investment (FDI) in mediating and enhancing this relationship. The results of this study provide support to the policymaking expectations adopted in the negotiations of free trade agreements, in that stronger levels of patent enforcement are found to have a significantly positive effect on the economic growth of both developed and developing countries. Importantly, inward FDI flows have a mediating role in positively boosting this effect for all countries in our sample, and particularly for developed countries.

European intellectual property institutions and Chinese foreign direct investment

“…The impact of strengthening IP institutions on FDI has recently started receiving additional currency, stimulating several empirical studies that have reported evidence on the effect of IP institutions on either inward FDI or outward FDI originating from one country. This evidence suggests that there is a positive relationship between strong IP institutions and FDI flows particularly in developing countries (e.g., Alexiou et al, 2016;Adams, 2010;Nicholson, 2007;Seyoum, 2006;Smarzynska Javorcik, 2004). On the effects of the regulatory structure of host IP institutions on inward FDI, Smarzynska Javorcik (2004) established a highly significant positive relationship.…”

IPR Law Protection and Enforcement and the Effect on Horizontal Productivity Spillovers from Inward FDI to Domestic Firms: A Meta-analysis

“…The TRIPS agreement entered into force in 1995 and set the minimum standards for IPR law protection among the member countries of the WTO (WTO 2017). The implementation of the TRIPS agreement brought a significant change to the availability of IPR law protection in the legislative framework of WTO member countries (Alexiou et al 2016). However, TRIPS did not set obligations for WTO countries regarding the effectiveness with which IPR law is enforced by public enforcement agents (Maskus 2015).…”

India's Outward Foreign Direct Investment: Growth Drivers

“…analyzed that asset-seeking OFDI by the Indian automobile industry is associated with higher R&D activity by the Indian parent company. Stronger levels of patent enforcement have a significant positive effect on the economic growth of both developed and developing countries (Constantinos et al, 2016). Patent application by residents is used as a proxy for the intensity of patenting in the host country for technological advancement leading to O-advantage.…”