Intellectual Property Rights and Foreign Direct Investment in Sub-Saharan Africa (2000-2016)

Abstract

This study looks at the impact of intellectual property rights (IPRs) on foreign direct investment (FDI) for a cross-section of 30 Sub-Saharan African (SSA) countries between 2000 and 2016. The broad objective of this study is to appraise IPRs protection as a determinant of Foreign Direct Investment (FDI) inflow in Sub-Saharan Africa. Specific objectives are to: examine the trend of Intellectual Property Rights protection in Sub-Saharan Africa; investigate the extent of IPR protection in the region; and examine the impact of IPRs Protection on FDI in the region.

The data used include Foreign Direct Investment (FDI), Inflation rate (INF), Market size proxy by GDP (MKT), Trade openness (OPEN) and Population growth rate (POP), which were sourced from World Bank Development Indicators 2017 edition. Data on Intellectual Property Rights (IPR) and Government Integrity were sourced from Property Right Index by The Heritage Foundation 2017 index of economic freedom. Descriptive and four different methods of panel techniques (Pooled ordinary least squares, Fixed effect and Random effect models) and the panel Generalized Method of Moment (GMM) were used to analyze the data.

The results indicate that first, strengthening intellectual property rights (IPRs) has a positive effect on foreign direct investment (FDI) with a coefficient of 0.325310 and P-value of 0.0146. The GMM estimation was used because of its superiority to fixed and random effect estimations. Other exogenous variables used include the following: Government integrity (GOVTINT) has positive relationship with FDI though the effect is not statistically significant with coefficient of 0.0418919 and P-value of 0.3338. Inflation (INF), as expected has negative relationship but the effect is not statistically significant with coefficient of about 0.086286 and a P-value of 0.9524. Market size (MKT) proxy by GDP has a coefficient of 0.088942 and a P-value of 0.0385. So the relationship is positive and it is statistically insignificant. Openness (OPEN) also has positive and also the effect on FDI with a coefficient of 0.316320 but not significant because the P-value is 0.2605. Lastly, Population growth rate (POP) has a positive relationship and significant with a coefficient of 2.526767 and P-value of 0.0000.

As the results indicate, intellectual property rights (IPR) protection has positive effect on foreign direct investment (FDI) inflow into SSA; its impact is very huge. Therefore, IPRs protection is important for consideration when SSA countries are taking decision on policies. Other institutional policies have to be put in right perspective. All other things been equal, the enforcement of IPRs will enhance large inflow of FDI into Sub-Saharan African countries and translate into economic growth of these countries. The conclusion is that protection of intellectual property Rights has great impact on Foreign Direct Investment inflow in Sub-Saharan Africa.