Patent Laws, Product Life-Cycle Lengths, and Multinational Activity

Do intellectual property rights influence multinationals’ manufacturing location decisions? My theoretical model indicates that countries with strong patent laws attract multinational activity, but only in sectors with relatively long product life cycles. By contrast, firms with short life-cycle technologies are insensitive, because offshore imitation is less likely to succeed before obsolescence. I document strong empirical regularities consistent with the model using a panel dataset on the global operations of US-based multinational firms and a new measure of product obsolescence. Moreover, my identification strategy allows me to isolate the causal effect of patent laws on multinational activity. (JEL D92, F23, K11, L60, O34, R32)