Working Paper: CEPR ID: DP2228
Authors: Beata Smarzynska
Abstract: Using a unique firm-level dataset this study shows that, contrary to the hopes of transition economies, foreign investors in the region are characterized by low, rather than high, R&D intensity. The results also indicate that investors with higher R&D spending are more likely to engage in non-manufacturing projects than in local production. The empirical analysis links these findings to weak protection of intellectual property rights (IPRs). It shows that weak protection deters foreign investment. This negative effect is especially strong in those technology-intensive sectors that, according to surveys, rely heavily on IPRs. Weak IPR protection also encourages investors to undertake nonmanufacturing projects rather than local production. The study contributes to the literature on transition, in which the issue of IPR protection has been neglected. It also adds to the literature on IPRs by providing empirical evidence on the effect of IPR protection on the composition of Foreign Direct Investment (FDI) inflows.
Keywords: foreign direct investment; intellectual property rights; transition economies
JEL Codes: F23; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weak IPR protection (O34) | FDI inflows (F21) |
| larger market size (F61) | FDI inflows (F21) |
| higher R&D intensity (O32) | probability of manufacturing investment (G31) |