How intellectual property rights affect innovation in multinational firms

Multinational enterprises (MNEs) locate their R&D activities around the world and their performance as innovators depends on this internal geography. But we also expect to see a link between their invention capabilities and how much innovation they actually do. In this paper, we explore whether and in what ways this relationship is influenced by the strength of intellectual property rights (IPR) protection, using a sample of highly innovative multinationals. We show that MNE innovative performance is enhanced when the firm’s R&D activities are based in locations where IPR protection is stronger. Moreover, the difference between the strength of IPR regulation in the home and host economies affects innovation performance, which we find deteriorates as the distance between home and host IPR regimes increases. Notably, MNEs from emerging countries exhibit a competitive edge when operating in highly protective systems thanks to their experience in more challenging environments in knowledge protection and involuntary leakages.