Policy makers and analysts require a better understanding of the effect, if any, that a developing country's system of intellectual property rights protection has on the transfer of technology to that country through foreign direct investment. It is frequently argued that relatively weak intellectual property rights protection in a developing country may lower the probability that multinational firms will invest there, and that, even if they do invest there, they may be willing (because of weak intellectual property protection) to invest only in wholly owned subsidiaries (not joint ventures with local partners) or to transfer only older technologies. But this and other hypotheses have been challenged, and there is very little evidence one way or the other. This paper is an attempt to help fill this important gap. Based on a combination of survey data, interview studies, and statistical analysis, the author finds that the strength or weakness of a country's system of intellectual property protection seems to have a substantial effect, particularly in high-technology industries, on the kinds of technology transferred by many U.S. firms to that country. Also, this factor seems to influence the composition and extent of U.S. direct investment there, although the size of the effects seems to differ from industry to industry.
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