Intellectual Property Rights, FDI, and Technological Development

This paper presents two simultaneous trade-offs faced by a developing country in protecting intellectual property rights (IPRs), namely (1) between attracting foreign direct investment and deterring international technology spillovers, and (2) between encouraging domestic innovation and suppressing technology diffusion. The optimal level of IPR protection depends on the technological capability of the host country. In less developed countries, IPRs should be just strong enough to induce FDI since international technology spillovers are the dominant source of technological development. A stronger level of IPR protection is instead recommended for more advanced emerging economies as a tool to exploit the potential of their domestic innovators. The results cast doubt on the adequacy of globally harmonized IPR standards that do not consider the level of development.