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Global Investment Decisions and Patent Protection: Evidence from German Multinationals

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  • Nabokin, Tatjana

Abstract

This paper investigates the role of patent protection in the global investment decisions of multinational firms. Using comprehensive firm-level panel data of German multinationals, we investigate how changes in a host country’s patent protection influence the extensive and intensive margin of foreign direct investment (FDI) decisions. We isolate the effect of patent protection by estimating a difference-in-difference type approach and controlling for an extensive set of fixed effects. At the extensive margin, we find that strengthening patent protection increases the probability of locating a foreign affiliate, whereby the effect is stronger for firms that highly depend on patent protection. The effect depends further on a host country’s initial legal and economic development. Given that a parent has established a foreign affiliate, no systematic effects of patent protection are found for the decision on how much to invest in the affiliate at the intensive margin. With regard to the ownership structure, we find that multinationals take into account the risk of intellectual property infringements and increase the ownership share held in the foreign affiliate after strengthening patent protection.

Suggested Citation

  • Nabokin, Tatjana, 2014. "Global Investment Decisions and Patent Protection: Evidence from German Multinationals," Discussion Papers in Economics 21266, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:21266
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    References listed on IDEAS

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    More about this item

    Keywords

    Intellectual property rights; patent protection; foreign direct investment; multinationals;
    All these keywords.

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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