Patent rights protection and Japanese foreign direct investment

This paper estimates the link between Japanese foreign direct investment (FDI) and the host country's patent rights protection (PRP) in 1985–2004. Regressions performed on data that are aggregated in a variety of ways identify a positive and significant link that is concentrated in countries with a high innovative (imitative) ability and technology-intensive industries. Firm-level logistic regressions show that the link is stronger for firms that depend more on patents to protect innovations than their industry peers. These patterns lend strong support to the argument that PRP and FDI are correlated across countries because the strengthening of PRP ameliorates investors’ concerns about the spillover of proprietary technology.

► Japanese FDI is positively correlated with foreign patent rights protection (PRP).
► The correlation is significant only in technologically advanced countries.
► The PRP–FDI link is significantly positive only in technology-intensive industries.
► The sensitivity of FDI to foreign PRP increases with the firm's patent intensity.