Intellectual Property Rights Protection and the Location of Research and Development Activities by Multinational Firms

The authors develop a model of the location of global R&D investments by multinational firms, where research investments increase the number of varieties of goods sold globally by the firm, and development activities reduce the cost of producing existing varieties in specific countries. Intellectual Property Rights (IPR) protection in a country enhances the efficiency of the firms local research as well as the profitability local development efforts. The authors test predictions of the model on survey data on foreign and domestic R&D for Japanese multinational firms. They find the strength of IPR protection to have a positive impact both on development expenditures and research expenditures.