The Effect of European Intellectual Property Institutions on Chinese Outward Foreign Direct Investment

Abstract

This study examines the role of the strength of the Intellectual Property (IP) institutions of 23 European countries in attracting Chinese Outward Foreign Direct Investment (OFDI) during the time period 2003–2015. Following a dynamic panel data analysis methodology, we find that the strength of IP institutions has a positive effect in attracting higher levels of OFDI from China. This is an important finding for the OFDI literature from emerging markets, since previous studies have researched this relationship from the OFDI perspective of developed countries. However, we also find a weak indication of a potential U-shaped relationship between the strength of IP institutions and Chinese OFDI. To better understand this relationship, we interact a European country's membership in the Former Eastern Bloc (FEB) with the strength of IP institutions and find a negative moderating effect. We therefore find that when investing in FEB countries, Chinese firms are attracted to weaker levels of IP institutional strength. The results of this study have important implications for future studies on the determinants of OFDI from emerging markets, as well as for European and Chinese businesses and policy-makers concerning the importance of IP institutional strength.

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