Composition of Foreign Direct Investment and Protection of Intellectual Property Rights in Transition Economies

Abstract

Using a unique firm-level dataset this study shows that foreign investors in transition economies are characterized by low, rather than high, R&D intensity. It also finds that investors with higher R&D spending are more likely to engage in non-manufacturing projects than in local production. The empirical analysis links these results to weak protection of intellectual property rights (IPRs). It shows that weak protection deters foreign investment, especially investment in those technology-intensive sectors that rely heavily on IPRs. Weak IPR protection also encourages investors to undertake non-manufacturing projects rather than local production. The study concludes that IPR protection affects the composition of FDI inflows.

JEL Classification: F23, O34