Stanley Watt has a new working paper on IPRs and foreign investment- Firm Heterogeneity and Weak Intellectual Property Rights, (July 2007). IMF Working Paper No. 07/161 Available at SSRN.

In weak IPR environments, the imitation of proprietary technology by domestic firms has become a deterrent for foreign investment. Different multinationals may view this deterrent differently. This paper develops a model where firms with more technology are less likely to invest in weak IPR environments. If imitation is costly, the model predicts that multinationals with the lowest level and highest level of technology will invest in weak IPR environments, and multinationals with a moderate level of technology will invest only in strong IPR environments. Empirical analysis with firm level data is consistent with this non-monotonicity result.

The finding is rather intuitive. Firms with low levels of technology have less to lose, and firms with high levels of technology will have other means of preventing misappropriation (for instance, by fragmenting R&D among several locations, or leveraging different forms of foreign investment).

The question of strengthening IPRs is not a matter of why, but of when. Nations with stronger IPR policies experience greater economic growth and industrialization. Economies that fail to adopt adequate IPR policies cannot become fully integrated into the global economy.