Intellectual Property Rights, Foreign Direct Investment, and Industrial Development

This paper develops a North-South product cycle model in which innovation, imitation, and the flow of FDI are all endogenously determined. In the model, a strengthening of IPR protection in the South reduces the rate of imitation and it increases the flow of FDI. Indeed, the increase in FDI more than o¤sets the decline in the extent of production undertaken by Southern imitators so that the South's share of the global basket of goods increases. Furthermore, while multinationals charge higher prices than Southern imitators, real wages of Southern workers increase while those of Northern workers fall.