Foreign Direct Investment and Trade Related Intellectual Property Rights (TRIPS): The Case of Latin American & Caribbean Developing Economies

Abstract

The growing share of knowledge-intensive products in international trade and the increasing sensitivity of multinational firms to intellectual property theft make it imperative to analyse the effect of IPR promulgation on their FDI decision. In this perspective the current article gauge the importance of Trade Related Intellectual Property Rights (TRIPS) agreement under World Trade Organisation (WTO) in increasing a Latin American & Caribbean (LAC) developing economy’s appeal for investors from abroad. Infrastructure and skilled labour availability, market size, macroeconomic stability, economic development, and trade liberalization are also considered. Time-invariant phenomena such as access to the sea, regional affiliations/proximities, income groupings and ability to speak one of the international languages, though desirable were not done because fixed effect panel estimation technique does not permit the use of dummy variables. Due to the 2008-2009 recession in the developed economies, the available investment funds withered, making the investors’ sceptic apropos the safety of their tangible and intangible property, especially in the developing world, causing a decrease in FDI to these nations in general. However, LAC countries were somewhat resilient and received a steadily increasing flow of foreign investment. Thus, it demands to analyse the factors that overcame the overseas investors’ scepticism and prompted them to invest in the LAC region. By utilizing annual data for 28 years that is 1989-2016 from 24 LAC developing nations it is found that infrastructure and human capital availability, macroeconomic stability, economic development, strengthening and worldwide harmonization of intellectual property right standards through TRIPS positively effects the overseas investor's investment decision. The host population used to measure market size is found to be insignificant when tested with other conventional FDI location pull factors. Similarly, liberalization, consistent with horizontal FDI theory, exerts a significant negative effect on inward FDI.