Trade-related aspects of intellectual property rights agreements and the upsurge in foreign direct investment in developing countries

Abstract

Globalization has brought about remarkable growth in worldwide foreign direct investment (FDI), especially in developing countries. Many previous papers have examined the drivers of FDI inflows to developing countries. Nevertheless, little attention has been paid to relationships between TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement and FDI. This paper examines whether TRIPS have spurred a sharp rise in FDI in developing countries. The research presented in this paper addresses the 1985 to 2012 time period to comprehensively examine the impact of TRIPS on inward FDI in 23 developing countries via Ordinary Least Square (OLS), Fixed Effects (FE) and System Generalized Method of Moments (System GMM) techniques. The empirical results show that enforcement of the TRIPS agreement constitutes a driving force of FDI in host countries. In addition, such effects vary with host country characteristics.