Multinational Firms’ Location and the New Economic Geography

Multinational Firms’ Location and the New Economic Geography

New Horizons in International Business series

Edited by Jean-Louis Mucchielli and Thierry Mayer

This book analyses how foreign direct investors choose their locations, whilst exploring the forces which shape international economic geography. Although these two issues are, to some extent, inter-related, researchers have only recently acknowledged the similarity of economic geography and international business approaches to the empirical assessment of likely causes of the degree of spatial concentration observed in many modern industries.

Chapter 10: Intellectual property rights and international location choices: theoretical modelling and simulations

Etienne Pfister

Subjects: business and management, international business, economics and finance, regional economics, geography, economic geography, urban and regional studies, regional economics


Etienne Pfister INTRODUCTION 10.1 Intellectual property rights (IPR) have long been a neglected field in international economics. Yet, their introduction in the World Trade Organization (WTO) agenda, notably through the much discussed TRIPs agreement, has motivated several theoretical and empirical papers in order to appreciate the likely consequences of a strengthening of IPR law in developing countries on the patterns of trade and foreign direct investment (FDI) (Combe and Pfister, 2001). In this context, the current chapter seeks to evaluate the role of IPRs in the location choices of multinationals’ subsidiaries. The extent and direction of the impact of IPRs on cross-border goods and capital flows remains extremely ambiguous. Consider international trade (Smith, 1999). On the one hand, stronger protection in the importing country should increase the market share of foreign IPR owners, thus resulting in higher export flows. On the other hand, however, stronger protection also yields greater market power and higher prices, thus leading to lower export flows. Some other contributions cast a look at the mode of foreign entry (Fosfuri, 2000; Markusen, 2001): in this setting, it is often shown that foreign direct investment is appropriate when the level of IPR protection is intermediary, that is, high enough to ensure that the local production process will not be counterfeited, yet too low to risk transfering one’s technology to a local competitor. These models thus assume that foreign direct investment and licence contracts result in involuntary technology spillovers from the IPR owner to the local firms,...

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