Closing the Institutional Gap: Protecting Technology in FDI

• In Event: Governance Implications of Multinational Firm Activity

Abstract

What is the relationship of foreign direct investment with a state's investment protection regime? It has commonly been viewed that foreign investors can seek outside institutional guarantees when investing in countries with relatively weak institutions for property protection, but for technological components of foreign direct investment, this option is in fact quite limited. How then do multinational corporations protect their property in host countries, especially in terms of technological assets? I argue that foreign direct investment can affect how domestic institutions for property protection develop in its countries of destination, thereby contributing to better rule of law in such countries. Instead of avoiding host country institutions, MNCs employ strategies to engage with both the host and home governments, and achieve better property protection through domestic institutions. Using original data on MNC strategies, cross-country analysis of technological investment activity, and host country case studies, I show that FDI leads to improvements in intellectual property institutions in host countries, and demonstrate the mechanisms through which MNCs influence the legal environment in host countries.

Author

• Siyao Li, University of Pennsylvania