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Intellectual Property Rights Protection, Complexity and Multinational Firms

  • Yang, Zhenzeng

This paper examines theoretically the impact of host intellectual property rights (IPR) protection and complexity on MNEs' investment decision to the South in order to explain why large amount of foreign direct investment (FDI) flows to low IPR protecting China and other emerging economies. There are two key assumptions, imitation cost are positively related to complexity and imitation cost is higher when imitating a product designed only for foreign market than those for host market. In the model, a strengthening of IPR protection in the South raises an MNE's profit and stimulates inward FDI and licensing simultaneously, and stronger IPR protection will also induce more higher complexity production transfered to the South. Furthermore, as cost-oriented FDI is less sensitive to host IPR protection, developing host countries with low IPR protection can attract relatively more cost-oriented FDI. The model implies that strengthening of IPR protection can help emerging economies attract more complex and market-oriented FDI.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46734.

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Date of creation: 07 May 2013
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Handle: RePEc:pra:mprapa:46734
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  1. Elhanan Helpman, 1992. "Innovation, Imitation, and Intellectual Property Rights," NBER Working Papers 4081, National Bureau of Economic Research, Inc.
  2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  3. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 557-86, May.
  4. Smith, Pamela J., 2001. "How do foreign patent rights affect U.S. exports, affiliate sales, and licenses?," Journal of International Economics, Elsevier, vol. 55(2), pages 411-439, December.
  5. Smarzynska Javorcik, Beata, 2004. "The composition of foreign direct investment and protection of intellectual property rights: Evidence from transition economies," European Economic Review, Elsevier, vol. 48(1), pages 39-62, February.
  6. Carluccio, Juan & Fally, Thibault, 2010. "Global Sourcing under Imperfect Capital Markets," CEPR Discussion Papers 7868, C.E.P.R. Discussion Papers.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  8. Peter Nunnenkamp & Julius Spatz, 2003. "Intellectual Property Rights and Foreign Direct Investment: The Role of Industry and Host-Country Characteristics," Kiel Working Papers 1167, Kiel Institute for the World Economy.
  9. Branstetter, Lee & Fisman, Ray & Foley, C. Fritz & Saggi, Kamal, 2011. "Does intellectual property rights reform spur industrial development?," Journal of International Economics, Elsevier, vol. 83(1), pages 27-36, January.
  10. Grossman, G.M. & Helpman, E., 1989. "Endogenous Prduct Cycles," Papers 144, Princeton, Woodrow Wilson School - Public and International Affairs.
  11. Juan Carluccio & Thibault Fally, 2008. "Global sourcing under imperfect capital markets," PSE Working Papers halshs-00586005, HAL.
  12. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-18, December.
  13. Grossman, G.M. & Helpman, E., 1989. "Endogemour Product Cycles," Papers 10-89, Tel Aviv.
  14. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  15. Khoury, Theodore A. & Peng, Mike W., 2011. "Does institutional reform of intellectual property rights lead to more inbound FDI? Evidence from Latin America and the Caribbean," Journal of World Business, Elsevier, vol. 46(3), pages 337-345, July.
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