Intellectual Property Protection and Foreign Direct Investment into Less Developed Economies in the post-TRIPs Period

In this paper we study the relationship between the strength of intellectual property (IP) protection that less developed countries provide and foreign direct investment (FDI) flows into these countries, in the post-TRIPs period 2004-2015. Our sample period is highly appropriate insofar as it comes after the ten year period that the developing countries were allowed for implementing IP reforms in accordance with the Trade-Related Intellectual Property Rights (TRIPs) agreement. Further, it is long enough to permit the modelling of a delayed FDI response to the IP reform stimulus. Our modelling strategy attempts to capture the heterogeneity of the impact of the IP reform on the FDI inflows by estimating a conditional difference-in-differences specification. Thus, we allow for the fact that the impact of IP reform can vary significantly across countries depending on the magnitude of intellectual property that they own for which they seek such protection, for that would indicate the importance that they attach to IP protection. Estimating a varying coefficient model, our results do not provide evidence of a statistically significant effect of IP reform on FDI inflows into less developed countries, nor do we find that the effect of such reform is significantly stronger for countries that own relatively larger amounts of intellectual property. These results hold contemporaneously as well as with lags. Instead, FDI inflows appear to be driven by market size and domestic investment climate variables. Disaggregating our sample into the sub-groups of developing countries and least developed countries, we find that our overall results for less developed countries are driven by the sub-group of developing countries.