Inward foreign direct investment and patent rights: Empirical evidence from OECD and nonOECD countries

This dissertation is an empirical investigation of the recipient market characteristics that determine the volume of foreign direct investment it attracts. It focuses on how a multinational's perception of the risk of imitation in the recipient market influences its choice of production location. It further investigates how the type of transactions between the multinational and its foreign affiliate are influenced by the perception of technology theft. For the purposes of this dissertation the recipient market's ability to imitate is modeled as a function of the strength of its patent protection regime. The dissertation includes a detailed survey of select models with a view to establishing that it is impossible to make an a priori theoretical prediction about the impact of stronger patent rights on inward foreign direct investment. The empirical analysis is based on a cross-country study over three decades and is supplemented with a case study of India's pharmaceutical industry. The empirical findings from this research are fairly intuitive in nature. Recipient market size is consistently an important determinant of inward foreign direct investment. Just as robust is the result that tighter domestic patent laws consistently attract higher volumes of direct investment. Moreover, this is especially true among NonOECD markets where there is currently considerable variation in patent laws. Stronger patent laws also seem to make it more likely that the multinational will hire local workers from that particular market.