Intellectual property rights protection and R&D in north-south trade with foreign direct investment

I examine the intellectual property rights (IPR) protection in the South when it affects techno-logical spillovers. A Northern firm, which conducts cost-reducing R&D, chooses exporting or FDI to serve the Southern market. Spillovers occur under FDI. It turns out that there is a non-monotonic relationship between the optimal IPR protection and efficiency of R&D. With low R&D efficiency, the South chooses a stringent protection to induce FDI or an even more stringent protection to encourage a higher R&D investment. A stringent protection is also chosen with high efficiency. With medium efficiency, however, a lax protection is chosen to induce exporting