130 likes | 133 Views
Foreign Direct Investment, Technology Transfer and Protection of Intellectual Property Rights. Beata Smarzynska Javorcik The World Bank. What does theory tell us?. Dunning’s OLI paradigm O wnership advantages L ocation advantages I nternalization advantages. Ownership advantages.
E N D
Foreign Direct Investment, Technology Transfer and Protection of Intellectual Property Rights Beata Smarzynska Javorcik The World Bank
What does theory tell us? • Dunning’s OLI paradigm • Ownership advantages • Location advantages • Internalization advantages
Ownership advantages • Large share of world R&D effort is conducted by MNCs, mostly in home countries • MNCs spend large amounts on advertising • MNCs possess valuable brand names • Coca-Cola (valued at 70 billion dollars) • Microsoft (65 billion) • IBM (52 billion) => MNCs want to protect knowledge/technology/ brand names
Location advantages • Market size (population size, income per capita) • Factor costs (labor costs, natural resources) • Business climate • protection of property rights, including IPRs • corruption • taxation • labor and environmental standards => IPR protection as ONE of the many elements of business climate
Internalization advantages • Determine choice between FDI and licensing • Stronger IPR protection => higher likelihood of licensing rather than FDI
Empirical evidence on the link between IPRs and FDI Volume • Lee and Mansfield (1996), Smith (2001) • positive correlation between the strength of IPR protection on the volume of US FDI • But no significant results in Ferrantino (1993) and Primo Braga and Fink (2000) => mixed evidence on IPRs and volume of FDI
IPR and composition of FDI • Some sectors are more reliant on formal IPR protection than others • For instance, unauthorized used of technology is less likely in sectors requiring high amount of investment, such as automobiles • Weak IPR protection deters FDI inflows into IPR sensitive sectors (Javorcik, forthcoming) • drugs, cosmetics, healthcare products • chemicals • machinery and equipment • electrical equipment => IPR protection matters for foreign investors in certain sectors
IPRs and purpose of FDI projects • Firm survey (Mansfield 1994) – the importance of IPR protection depends on the nature of the investment project • sales and distribution - 20% of investors consider IPRs to be important • rudimentary production / assembly - 30% • manufacturing - 50-60% • R&D - 80%
IPRs and purpose of FDI projects • Evidence from Eastern Europe and the former Soviet Union (Javorcik, forthcoming) • An increase in IPR protection shifts foreign investors preference away from projects focusing solely on distribution and towards setting up manufacturing activities
What matters for FDI is Enforcement • High incidence of corruption => weak enforcement • Corruption acts as a tax on foreign investors, deterring FDI inflows (Wei, 2000) • Corruption shifts investors’ preference away from wholly-owned subsidiaries and towards joint ventures (Javorcik and Wei, 2001)
Technology transfer and entry mode • Empirical studies find that investors with sophisticated technologies and valuable brand names are more likely to set up wholly-owned subsidiaries (WOS) than joint ventures (JVs) (Stopford and Wells, 1972; Javorcik, 2001) • Technologies introduced into JVs in developing countries are 3-4 years older than those introduced into WOS (Mansfield and Romeo, 1980; Lee and Mansfield, 1996) • More movement of staff (managers, technicians) accompanied transfer of technologies to WOS than to JVs (Ramachandran , 1993) => Corruption may have implication for the entry mode and thus technological content of investment projects
Why should we care? • MNCs account for a large share of the world’s R&D effort • MNCs as a channel of technology transfer to host countries • MNC subsidiaries have higher productivity than domestic firms • Mixed evidence on intra-sectoral spillovers from FDI (strong results for developed countries but mixed conclusions for developing economies) • Positive evidence of inter-sectoral spillovers from FDI (i.e., spillovers from MNCs to their local suppliers)
Conclusions • IPR protection is ONE of the many elements of business climate affecting FDI inflows • IPR protection affects particularly • investors in high tech sectors which rely heavily on patent protection • manufacturing and R&D projects (but little impact on assembly or distribution) => Implications of IPR protection for technology transfer through FDI