The Location of Overseas Research and Development and Intellectual Property Protection

Abstract

Do multinationals distinguish between locations on the basis of the local intellectual property laws, in conducting their overseas research and development? We seek to address this question using data on US multinationals spanning the period 1977–2004. Particular care is taken to capture the host location enforcement environment of intellectual property protection. For our sample and time frame, we find that stronger intellectual property protection is not important in determining overseas research and development by these multinationals. The results are robust to disaggregation of the protection measure into its component indices, as well as to disaggregation of overseas research and development by industry. Instead, host country market size and human capital resources are found to be consistently important in explaining the location of overseas research and development.