Location Choice and Host Country IPR Protection

Abstract: In this paper the effect of host country intellectual property rights (IPRs) protection on location choice is analyzed, by using firm-level panel data on Swedish multinational enterprises (MNEs). The data are separated into two sub-samples; for the 1970s and 1990s. The empirical model used is the conditional logit model. An index on patent strength is used as a measure of the host countries’ level of IPRs protection. Other variables controlled for include country-specific variables such as GDP, GDP per capita, skills, taxes, as well as a distance variable and the parent-specific variables on R&D-intensity and an interaction between IPR index and R&D-intensity. The results for the measure of IPR protection differ between the two time periods, with statistically significant negative estimates for the 1970s, and positive but statistically insignificant estimates for the 1990s. A possible interpretation of the result may be that MNEs substitute FDI for arm’s length agreements such as licensing.