Patent Protection, Strategic FDI and Location Choices: Empirical Evidence from French Subsidiaries’ Location Choices in Emerging Economies

Abstract

This article studies the location choices of French firms in 17 developing countries. Detailed attention is paid to the role of the patent rights in the host country. On the one hand, the reduction in competition that follows greater patent protection can attract foreign subsidiaries. On the other hand, foreign direct investment (FDI) can have the ‘strategic’ purpose of deterring local competitors. In that case, FDI and patent protection are substitutes and a greater enforcement of patent rights may reduce the strategic incentives to invest in a country, especially if the markets are large enough. Our regressions indicate that on average, patent rights exert only a negligible influence on the location choices of French firms. However, if the market potential of the host countries is sufficiently large or if their expenditures on R&D are sufficiently small, a greater effectiveness of patents decreases the probability of location.