Purpose. Despite decades of research, the relationship between intellectual property rights (IPRs) and FDI remains ambiguous. Using a recently developed patent enforcement index (along with a broader IPR index) and a large sectoral country-to-country FDI dataset, we revisit the FDI-IPR relationship by testing the impact of IPRs on UK and US outward FDI flows as well as earnings from outward FDI. Design/methodology/approach. We use disaggregated data for up to 9 distinct sectors of economic activity from both the US and UK for outward FDI flows and earnings from outward FDI, for a panel of up to 42 developed and developing countries over sample periods from 1998 to 2015. We employ a panel fixed effects approach that allows us to exploit the longitudinal properties of the data using Driscoll and Kraay’s (1998) nonparametric covariance matrix estimator. Findings. We do not find any consistent evidence in support of the hypothesis that countries’ strength of IPR protection or enforcement affects inward FDI, or that sector of investment matters. Our results prove robust to sensitivity checks that include an alternative broader measure of IPR strength, analyses across sub-samples disaggregated according to the strength of countries’ IPRs as well as developing vs. developed economies, and an extended specification accounting for dynamic effects of the response of FDI to both previous investment levels and IPR (patent) protection. Originality. We make use of the largest most granular sectoral country-to-country FDI dataset employed to date in the analysis of the FDI-IPR nexus with disaggregated data for outward FDI and earnings from outward FDI across up to 9 distinct sectors of economic activity from both the US and UK. We employ a more sophisticated measure of IPR strength, the patent index proposed by Papageorgiadis et al. (2014), which places emphasis on the effectiveness of enforcement practices as perceived by managers, together with the overall administrative effectiveness and efficiency of the national patent system.
De Vita, Glauco Alexiou, Constantinos Trachanas, Emmanouil Luo Yun
Department of Accounting, Finance and Economics
Year of publication: 2021Date of RADAR deposit: 2021-11-09