Impact of Intellectual Property Protection on Foreign Direct Investment of Southern Firms

Abstract

This paper makes pioneering attempts to explore the impact of intellectual property protection (IPP) on the technology-seeking foreign direct investment (FDI) by firms in less-developed countries (southern firms). Introducing the patent-racing idea into Gournot model, the paper develops an original model of technology- seeking FDI decision made by southern firms influenced by IPP. We found that stronger IPP in less-developed countries (the South) increases the possibility of technology-seeking FDI by southern firms; an appropriate IPP degree depends crucially on the IPP degree in developed countries (the North), R&D resource abundance of the South compared with the North and the technology nature. Case study of China's information equipment industry and automobile industry is chosen to justify the model empirically.