Intellectual property‐related preferential trade agreements and US offshoring to developing countries

Abstract

: International standards in the protection of intellectual property rights (IPRs) are increasingly guided by bilateral and regional preferential trade agreements (PTAs). In this paper, we estimate the effect of these IP-related PTAs on US offshoring behavior in developing countries. We utilize a difference-in-difference empirical methodology that addresses several possible sources of endogeneity and exploits industry variation in the importance of IPRs to identify the effect of these PTA-induced IPR reforms. We find that IP-related PTAs are associated with a substantial increase in US offshoring in IPR-intensive industries relative to non-IPR-intensive industries. This increase occurs both within the boundaries of the multinational firm and through arm’s-length contracts with domestic firms. We do not find strong evidence for a compositional shift towards either type of offshoring. These findings provide direct empirical evidence that PTA-induced IPR reform stimulates multinational activity in developing countries. helps to ensure that the PTAs included in our sample require substantial IPR reform. In addition, our approach follows a line of empirical literature examining the impact of IPR reform in developing countries specifically, including Ivus et al. (2017) and Ivus and Park (2019) among others. Our focus on non-OECD reforming countries aligns with Sell (2010), who details the clear distinction between IPR institutions among countries within and outside of the OECD in the context of TRIPS-plus standards.