The Effect of Preferential Trade Agreements with Intellectual Property Right Provisions on Multinational Production

This thesis measures the effect of preferential trade agreements (PTAs) with intellectual property rights provisions (IPRs) on multinational production (MP). This paper integrates the Organisation for Economic Co-operation and Development (OECD) Analytical Activity of Multinational Enterprises (AMNEs) database – along with the Design of Trade Agreements (DESTA) database. Utilizing a standard gravity model, five different regressions are examined to account for the depth of IPR provisions embedded in bilateral PTAs. Specifically, this thesis measures substantive IPR provisions, IPR provisions specified in pharmaceuticals, IPR provisions specified with a particular geographical indication of production, and IPR provisions defined as an investment on the MP of manufacturing industries. Also, this paper specifies the effect of substantive IPR provisions on IPR-intensive manufacturing industries. Although the effect of PTAs with substantive IPR provisions on MP was insignificant – when specified to IPR-intensive industries these agreements enhanced MP by about 5%. Furthermore, IPR provisions defined as an investment increased MP across all manufacturing industries by about 10%. The results suggest substantive IPR provisions increase MP in IPR-intensive industries because it facilitates the transfer of sensitive technological knowledge from multinational firms to their foreign affiliates which stimulates production. As for IPR provisions defined in the context of investment, this effect is significant across all manufacturing industries through their enhancement of the intensive margins of MP, which is output per foreign affiliate.