Intellectual property in a globalizing world: issues for economic research

Keith E. Maskus *, University of Colorado Boulder, USA

Abstract
This paper documents and describes the major changes in recent decades of global norms for protecting intellectual property rights (IPRs). Largely due to the World Trade Organization and regional trade agreements, there has been a significant upward harmonization of regulations in this area. I review recent econometric work studying the effects of IPRs on innovation, trade, and technology transfer. While this work has illuminated important effects, there are many other unexplored areas. I set out a research agenda for international trade specialists in order to encourage deeper empirical work into areas of policy complementarity, market entry, knowledge transfer costs, and other issues.

The legacy of nineteenth century treaties on the current trade of Chinese cities

Keith Head, University of British Columbia, Canada, and CEPR, UK John Rie, University of British Columbia,
Xiaonan Sun, University of British Columbia,
Junjie Hong, University of International Business and Economics, China

Abstract
We examine the effect of treaty linkages established between Chinese cities and foreign countries during the nineteenth century on China’s trade today. We hypothesize that these historical arrangements created relationship-specific capital that continues to facilitate trade. In the full sample of bilateral trade between 335 cities and 212 countries, there are significant linkage effects. However, ensuing analysis indicates that greater trade among cities and countries who are linked by treaties largely reflects the propensity of higher income partners to trade more with each other. These findings underscore the importance of controlling for trade complementarity related to the level of development of trading partners in cases where lack of time-series variation in the key explanatory variable prevents inclusion of bilateral fixed effects.

Globalization, ownership, and the effects of trade liberalization on Chinese import prices

Bo-Young Choi, Korea Institute for International Economic Policy, Korea
Deborah L. Swenson, University of California, Davis, USA

Abstract
This paper studies the differential effects of trade liberalization following China’s accession to the World Trade Organization. While China’s tariff liberalization was uniformly implemented as a matter of national policy, our results show that the pass-through of tariff reductions to import prices was more pronounced for products that were imported by purchasers in China’s provinces that were more exposed to globalization. In addition, we find that the strength of tariff pass-through was also affected by firm ownership: tariff pass-through was lower for products imported by Chinese state-owned enterprises than it was for products imported by foreign-owned enterprises (FOEs). Finally, we show that tariff pass-through increased as provinces became more exposed to globalization – an effect that was more pronounced for imports purchased by private Chinese firms than it was for the imports purchased by FOEs.

Keywords: international trade; import price; pass-through; ownership; globalization
JEL classification: F14; F61; P31

Investment layers, regional environments, and investment efficiency: evidence from FDI in China

Audrey Wen-hsin Hsu*, National Taiwan University
Suz-Jung Huang, Deloitte, Taiwan
Sophia Hsintsai Liu, National Taiwan University

Abstract
This study investigates whether the length of investment layers for FDI in China is related to capital investment efficiency. We measure the length of investment layers of a multinational firm using the number of layers from the parent firm to the lowest-tier subsidiary. We argue that the agency problems and information asymmetry between corporate insiders and outside capital providers increase with the number of layers, and reduce the creditors’ willingness to provide capital. Using the sensitivity of investment to cash flow to measure investment efficiency, we find that investment layers decrease investment efficiency. In addition, we also find that the strength of legal environments and the level of market development in each province can attenuate the negative association between investment layers and investment efficiency .

Keywords: investment layers; information asymmetry; investment-cash flow sensitivity; foreign direct investment (FDI); institutional environments
JEL Codes: F21, L20, O53

Does minority shareholder protection matter? Evidence from open-market share repurchases

Ruei-Shian Wu, Yuan Ze University, Taiwan
Chuan-San Wang*, National Taiwan University

Abstract
This study examines the impact of minority shareholder protection on the signaling effect of open-market share repurchases, the post-repurchase operating performance, and the subsequent investment decisions. When controlling owners retain tight control of their firms by insufficient equity investment, the discrepancy between voting rights and cash flow rights induces an entrenchment problem and undermines minority shareholder protection. This study finds that the market reaction to share repurchase announcements is contingent on minority shareholder protection. The signaling effect of repurchase announcements is weak for firms subjected to poor minority shareholder protection, especially for the repurchase purposes of converting debt to equity and signaling undervaluation. Moreover, the results show that poor minority shareholder protection is negatively associated with the long-term operating performance following repurchase announcements. We also find that repurchasing firms with poor minority shareholder protection experience notably declines in R&D expenses, cash holdings, and inventory when they repurchase shares to convey
undervaluation.

Keyword: minority shareholder protection; share repurchase; signaling effect; operating performance; post-repurchase investment
JEL classification: G32; G34; G35

Intellectual property rights protection, ownership structure and vertically related markets

Po-Lu Chen, Tamkang University, Taiwan

Abstract
This article considers the protection of intellectual property rights (IPR) as a determinant of the mode of foreign direct investment. By analyzing wholly owned investment and equity joint venture (JV) in vertically related industries, I find that as IPR protection gets more stringent, the propensity to choose equity JV decreases. Analysis of the firm-level data set from Taiwanese multinational manufacturing enterprises in 2006 lends supports to this result. This article also finds that local welfare increases after entry of a multinational enterprise (MNE) if the local market size is not too large. In addition, after MNE’s entry, further strengthening of IPR is beneficial to the MNE but is detrimental to local welfare.

Keywords: intellectual property rights protection; foreign direct investment; ownership structure; vertically related markets
JEL Classification: F13, F23, L24, O32, O34