Encouraging domestic innovation by protecting foreign intellectual property

This paper examines the relationship of respect for foreign intellectual property (IP) and domestic innovation. In a global economy, countries may choose to protect the IP of their own citizens, foreigners, or both or neither. We develop a model that shows that countries will have higher levels of innovation when respecting both domestic and foreign intellectual property. We test this prediction and show that domestic innovation is positively related to respect for both foreign and domestic IP. Intuitively, respect for domestic IP encourages innovation. We demonstrate the less intuitive case that protection of foreign IP further incentivizes domestic innovation.