The TRIPS Agreement and Its Effects on the R&D Spending of US-Owned Multinational Companies in Developing Countries

Abstract

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) has revolutionized the way international intellectual property rights are defined and enforced. The biggest changes have been for developing countries that were required to adopt stringent US style intellectual property protection in return for membership in the World Trade Organization and the increased access to international markets associated with WTO membership. Many critics of the TRIPS regime argue that the new intellectual property protections are unduly burdensome to developing countries and that their costs far outweigh their benefits. On the other hand, TRIPS proponents contend that a high global level of intellectual property protection benefits developing countries by encouraging innovation and technology transfer, as well as attracting foreign direct investment. In this thesis, I test whether the strict intellectual property protection regulations required by the TRIPS agreement benefit developing countries, specifically by attracting private US research and development funds. I used empirical data to examine the level of country-specific research and development (R&D) spending by foreign affiliates of US-owned multinational companies between 1989-2003 as a function of whether the country has adopted two of the major patent protection regulations required by TRIPS - patent protection for a duration of twenty years and patent protection for pharmaceuticals. Results from the regression analysis suggest that providing a patent protection duration of twenty years positively impacts the R&D spending while providing patent protection for pharmaceuticals does not impact it. As such, pharmaceutical patent protection should be enforced in a case-by-case manner, whereas twenty-year patent protection should be broadly undertaken.