This article recognizes that Foreign Direct Investment FDI, plays a vital role in the relation between Intellectual Property Rights and Growth. It is the cornerstone that propels IPR and Growth, hence encouraging innovation to insurmountable heights of growth and success. Usually it is often viewed that strengthening of IPR significantly promotes Foreign Direct Investment, however this article seeks to justify that the inverse proves that FDI is also essential to IPR and Growth. Foreign Direct Investment (FDI) is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest (Corporate Finance Institute, 2020). There are 2 roles of FDI which are going to be addressed in this article, they include; Provision of subsidies and advanced technology resources & Foreign Stimuli.
1. Provision of finance and advanced technology
Enormous resources fostered by Foreign Direct Investment, investors provides the necessary tools for big projects that are demanding, for example, in order to authenticate the potency of a patent-able innovation it requires an extensive Research and Development (R&D) which proves its significance.
R&D projects are great innovative research works that are predominantly funded by Foreign Direct Investment in several countries around the world. The same R&D projects are huge research investment that requires sums of financial and technological investment, entities from other countries can invest in foreign companies that are conducting the research. The output of the research is the new invention that is patent-able as Intellectual Property, for example new pharmaceutical vaccines, new industrial machines etc. Nonetheless, it is useful first to discuss how the strength of Intellectual Property Rights could affect FDI decisions. Ultimately, what matters to the firm is the likelihood that an investment will raise its expected profits. While there are numerous factors that influence profitability, the issue regarding Intellectual Property Rights is the extent to which the regime affects the firm’s perception that it will be able to earn a higher return on its protected knowledge-based assets (KBAs) through FDI, relative to other means of earning such returns, [KE Maskus, Intellectual Property Rights and Foreign Direct Investment (2000)]. It is fair to state that Foreign Direct Investment has a significant role that generates capital accumulation enabling growth and strengthening of Intellectual Property.
Advanced Technology brought by Foreign Direct Investment help to maximize the progression in Patent protection of any inventions. The essential guarantee of any patent created is to ensure that any of the inventions cannot be easily imitated or copied hence advanced means of creation makes it twice as hard to do so. Foreign Direct Investment contribution in different countries always improve the quality of Patent protection hence playing a vital role in the relation between Intellectual Property and Growth.
An extensive survey conducted (Mansfield 1994) shows the importance of IPR protection depends on the nature of the investment project the guarantee of strong Intellectual Property ensures a good flow of Foreign investments.
2. Foreign Stimuli
Foreign Direct Investment has a significant role as a foreign stimuli which simply means sometimes in a particular country the market is saturated with the similar ideas and lack of innovation. A foreign intervention brings new innovative ideas for example technology sharing and exchange or trade of knowledge-based assets. New innovation from Foreign based entities plays a role of strengthening the Intellectual Property of the host country. One of the reasons is that it brings competition to the domestic entities as a result inspiring innovation on an uncharted level. Most multinational companies who conduct technology transfer to host countries tend to have higher productivity than domestic firms
Technological Transfer through Foreign Direct Investment promotes competition to the domestic entities thereby forcing them to upgrade their technology. Technology transfer (TT) refers to the process of conveying results stemming from scientific and technological research to the market place and to wider society, along with associated skills and procedures, and is as such an intrinsic part of the technological innovation process, (European Commission). New technological ventures or inventions strengthens the position of Intellectual Property as more patent-able innovation continuously emerge and the need for Patent protection will be significantly be, in dire need of its service. The role of Foreign Direct Investment as a foreign stimuli is unquestionable it is inevitable.Caution when appreciating Technology from foreign countries especially the advanced countries towards developing countries. “The reality of the technology acquisition was aptly described by Constantine Vaitsos as one of “technology commercialization” or technology trade, which brought into focus the nature of the market through which technology is “transferred” to the developing countries1 . Vaitsos argued that technology transfer is governed by a bargaining relationship between the suppliers and the recipients. In this relationship, purchasers are at an inherent disadvantage, owing to two factors: (i) the oligopolistic or even monopolistic nature of the international market for technology; and (ii) the nature of technology itself, which is highly complex and cannot be evaluated thoroughly by buyers before a particular transaction” Dhar.B & Joseph.R, (March 2012)
Foreign Direct Investment is one of the most important factors behind high economic growth achieved, in South Korea, China, India, Malaysia and Singapore. These countries are primarily provided tax incentives, monopoly rights and cost advantages facilities to foreign investors, (Leman Erdal and Ismet Gocer, 26 July 2015) The Effects of Foreign Direct Investment on R&D and Innovations: Panel Data Analysis for Developing Asian Countries. Foreign Direct Investment brings great value to any country’s growth and most importantly strengthening their Intellectual Property.Growth is essentially the result of successful implementation of Foreign Direct Investment, the example cited illustrates, how developing countries in Asia grew to greater heights.
FDI inflow is considered as dependent variable and charges of IP use, patent granted, patent filed by residents, non-residents and R&D expenditure as the percentage of GDP as an independent variable and proxy to IPR protection. The empirical results suggest that charges of IP use, total patent granted and patent filed by non-residents affects FDI inflow, (Rajender Kumar; Sunil Kumar Yadav; Saurabh Verma). Many firms rely on international trade relations, this comprises of national economies and foreign direct investment. Intellectual property has significantly benefited from these activities extending the protection of an intangible asset internationally.
Foreign Direct Investment playing a vital role in the growth of Intellectual Property Rights however, with the process of agreement to conduct a relationship established between the investor and the investee is usually of a fiduciary nature, the risk of monopoly and exploitation. Ultimately, it is undeniable that Foreign Direct Investment has a significant role in the relation between Intellectual Property Rights and Growth, it accelerates progress in the Global Economy.
References
KE Maskus, https://www.iatp.org/sites/default/files/Intellectual_Property_Rights_and_Foreign_Direc.htm
European Commission
https://ec.europa.eu/knowledge4policy/technology-transfer/what-technology-transfer_en
Foreign Direct Investment, Intellectual Property Rights and Technology Transfer The North-South and the South- South Dimension, March 2012
Mansfield, 1994
Leman Erdal and Ismet Gocer, 26 July 2015,
The Effects of Foreign Direct Investment on R&D and Innovations: Panel Data Analysis for Developing Asian Countries
Rajender Kumar; Sunil Kumar Yadav; Saurabh Verma, Intellectual property rights protection and foreign direct investment: a study of BRICS countries
