Closing The Institutional Gap: Protecting Technology In Foreign Direct Investment

How does foreign direct investment (FDI) affect a state\u27s domestic property protection regime and rule of law? Existing literature argues that foreign investors seek outside institutional guarantees to substitute for weak property protection in host countries. I argue that this external option is limited, especially for intangible components of foreign direct investment. I theorize that multinational corporations (MNCs) can seek property protection through host country domestic institutions rather than bypassing them, even in countries with relatively weak rule of law. Further, I argue that MNCs seek protection for their assets through leveraging home government strengths and host government channels for institutional change. I draw on original country and firm-level data, supplemented by survey experiments, interviews, and archival documents to test the empirical implications of my theory. I find that MNCs are able to influence host country institutional outcomes in intellectual property protection. MNC strategies that directly engage with the host country government is more likely to achieve targeted changes to enforcement (de facto effect), whereas home country engagement with the host country at the state-to-state level is more likely to achieve broad-based legal changes (de jure effect). Further, the strength of the home country channel is conditional on the degree to which a home state has economic leverage over a host state. MNC political strategies in the host country can bring about better property protection outcomes but face political and legal constraints. Overall, foreign direct investment “closes the gap” between levels of intellectual property protection of home and host countries, thereby contributing to rule of law in the latter. This dissertation brings international investment into an account of how domestic institutions evolve and provides new insights into how foreign direct investment can contribute to rule of law in developing countries