Foreign Direct Investment Inflows and Intellectual Property Rights: Empirical Evidence from Different Income Groups

Abstract

This study examines the impact of intellectual property rights (IPRs) on Foreign direct investment (FDI) inflows by considering global data with three income groups classified by World Bank (i.e. high-, middle-, and low-income groups). The empirical model relates FDI inflows to IPRs, controlled by a set of known variables, namely GDP per capital, trade openness, real exchange rate, and real interest rate. The study covers panel data of between 35 and 100 countries for the period 1980–2014. The panel cointegration tests suggest that FDI inflow and IPRs with the other control variables are cointegrated for full countries and high-income group. Their estimated (long-run) coefficients are 0.04 and 0.18, respectively, but insignificant in the short-run. The impact (short-run) of TRIPS agreement is positive for full countries, but negative for low-income group. Non-causality tests further support the role of IPRs on FDI. Various transmission channels have been identified, in particularly for low-income countries. This study enlightens policymakers about the policy on creating a conducive and sustainable environment for IPRs in order to encourage FDI inflows to their countries.

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