Patent Regimes, Host Country Policies, and the Nature of MNE Activities*

Abstract

AbstractThis paper provides useful insights in the debate regarding the relationship between stronger patent rights, host country policies and multinational activity using panel data from US MNEs. It analyzes the impact of stronger patent protection on the exports, local affiliate sales and licensing activities by explicitly modeling the joint nature of the MNE's decision‐making process in servicing a foreign market. The key findings support the idea that the policy environment in the host country influences the impact of stronger IPRs on US MNE activities during the period 1992 to 2000. A risky environment in the host country appears, on average, to have a negative and significant impact on unaffiliated exports and affiliate sales. Increased patent protection in high‐risk countries, on average, appears to reduce licensing, and increase unaffiliated exports, suggesting a dominant monopoly effect of stronger IPRs in the former case and a dominant market expansion effect in the latter case.