Patent Protection and Foreign Direct Investment

The importance of development and use of products embodying intellectual property rights has increased dramatically. The growing share of knowledge‐intensive products in worldwide trade, together with the increase in international technological competition, has magnified the importance of patents and other forms of intellectual property. The objective of this study is to examine the effect of patent protection on inward foreign direct investment (FDI). It also examines the relative importance of other variables such as market size, trade orientation, unemployment rates, and so on. The findings are supportive of the fact that the level of patent protection is a strong determinant of investment flows. A proper understanding of this relationship will help firms and governments devise appropriate intellectual property policy to encourage the growth and expansion of FDI.