Having summarized briefly some of the current controversies over intellectual property rights, and the changes that often occur during industrialization in countries' attitudes toward such rights, we turn to one of the central topics of this chapter: the relationship between intellectual property rights protection and the transfer of technology through foreign direct investment. As is well known, foreign direct investment is generally regarded as an important means of transferring technology to developing countries.2 From both policy and analytical perspectives, it is important to obtain a better understanding of the effect, if any, that a developing country's system of intellectual property rights protection has on the transfer of technology to that country through foreign direct investment.
According to some observers, relatively weak intellectual property rights protection in a developing country may reduce the likelihood that multinational firms will invest there. Moreover, even if they do invest there, they may be willing (because of weak intellectual property rights protection) to invest only in wholly owned subsidiaries (not joint ventures with local partners) or to transfer only older technologies. For example, Robert Sherwood (1988) has argued that:
Those who might send a leading technology to . . . a country [with weak intellectual property rights protection] would soon learn of their folly upon losing it to a competitor. There is an efficient grapevine among companies which do business internationally. If one has a bad experience in a country, all the others soon learn of it. The newer technology is not withheld to harm or abuse that country. It is kept safe at home when safeguards in a host country are defective.
Although these hypotheses may be true, there is little or no evidence to support (or deny) them. With regard to licensing, an Organization for Economic Cooperation and Development (OECD) survey indicates that exchange controls, government regulations (particularly prior approval), and weak protection of intellectual property rights were the most frequently cited disincentives to licensing in developing countries (OECD, 1987: Table 40). Very little seems to be known, however, about the effects of intellectual property rights protection on the nature and amount of technology transferred to a country via direct foreign investment. Clearly, the answer may vary, depending on the industry in question and on the characteristics of the