Intellectual property rights, quality of institutions, and foreign direct investment into Developing Asia

Developing Asian countries are strengthening their intellectual property rights regime as they themselves become producers of intellectual property. At the same time, developing Asia has attracted large amounts of foreign direct investment and this trend is expected to continue in light of the region’s strong growth prospects. In this paper, the relationship between intellectual property rights and foreign direct investment in developing Asia is explored. To do so, a theoretical model is developed to predict that stronger intellectual property rights protection attracts more foreign direct investment in countries with small informal economies—i.e., strong institutions—but not in countries with large informal economies—i.e., weak institutions. Its empirical analysis, based on a threshold effect model, yields some evidence which supports the theoretical model.