Intellectual Property Rights, Investment Climate and FDI in Developing Countries

Abstract

What is the impact of intellectual property rights (IPR) protection on foreign direct investment (FDI)? Has the coming into effect of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) had any impact on FDI inflows in developing countries? This paper answers these questions by the use of panel data for a cross – section of 75 developing countries over a period of 19 years (1985 – 2003). The results of the study indicate that: 1) strengthening IPR has a positive effect on FDI; 2) the impact of patent protection on FDI after the TRIPS agreement is far and above that of the pre – TRIPS era; 3) the degree of openness, growth rate of the economy and investment are also key determinants of FDI. The findings of the study suggest that strengthening IPR is only one component of the many factors needed to maximize the potential of developing countries to attract FDI.