What Do We Know About the Impact of Intellectual Property Rights on the Foreign Direct Investment Location (Country) Choice? A Review and Research Agenda

Abstract

Despite a longstanding debate, at both a theoretical and empirical level, research on the relationship between foreign direct investment (FDI) and intellectual property rights (IPRs) remains scant and ambiguous. As a result, the link between IPR strength and multinational enterprises' (MNEs) propensity to invest is unproven and seemingly dependent on a number of factors. We critically review the theory and evidence of the influence of IPRs on FDI and MNEs' investment location (country) decisions both to 'take stock' of existing knowledge of this relationship and, by identifying gaps in, and shortcomings of prior work, develop a fruitful research agenda. We find that existing empirical work on the IPR-FDI nexus, though skewed in favour of a positive relationship between IPR protection and FDI, is fragmented, inconclusive and unable to square the conflicting theoretical predictions on how the strength of IPRs can affect MNEs' FDI location decisions. Several issues and challenges are highlighted to explain the difficulties of the collective body of past empirical work to provide a definite answer to the question of the impact of IPRs on FDI, from which valuable recommendations are proposed to guide future applied research.

Political connection, contract intensity, and OFDI: Evidence from China

“…44More broadly, our study also relates to the abundant literature on the determinants of FDI (e.g., Brada et al., 2021; Erdogan, 2014; Faeth, 2009; Noon et al., 2018). …”

“…3 This is consistent with the fact that many firms lost their political connections after numerous officials were prosecuted in this campaign against corruption; thus, we are able to verify the underlying rationale by employing the subsample after 2013. 4 More broadly, our study also relates to the abundant literature on the determinants of FDI (e.g., Brada et al, 2021;Erdogan, 2014;Faeth, 2009;Noon et al, 2018). 5 These alternative institutions often evolve to deal with contacting or financial issues, such as repeated interactions, culture, networks, and so forth (e.g., Araujo et al, 2016;Chaney, 2014).…”

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

“…Against this backcloth, and despite several decades of research on the IPR-FDI nexus, the relationship between the two remains ambiguous. As pointedly noted by the recent review article by Noon, De Vita and Appleyard (2019), conflicting theoretical predictions on how the strength of a country's IPR system can affect MNCs' FDI location choice have been hypothesized over the years and, taken collectively, the empirical literature is equally contradictory and inconclusive.…”

“…Second, scarcity of quality FDI data has led to systematic inconsistencies in measurement across most previous studies, often plaguing the reliability of reported results (Noon et al, 2019). In particular, aggregate FDI measures based on count data or the net accumulated stock of FDI provide insufficiently precise measures to gauge how FDI responds to changes in IPRs over time, especially when short sample periods -which in many papers are restricted to one, two or three years (see, e.g., Ferrantino, 1993;Mansfield, 1995;Braga and Fink, 1998;Maskus, 2000;Nunnenkamp and Spatz, 2004;Seyoum, 2006;Nicholson, 2007;Watkins and Taylor, 2010) -are considered.…”

Modelling the impact of intellectual property protection and spillovers on attracting foreign direct investment

“…Among important F.D.I.-related issues, intellectual property rights (I.P.R.) protections have attracted decades of studies (Kukharskyy, 2020;Maskus, 1998Maskus, , 2015Noon et al, 2019). From an ex ante perspective, I.P.R.…”