Multinational Investments, Technology Transfers, and Copyright Protection
Walter G. Park
American University
Washington, D.C.
202-885-3774 (O)
202-885-3790 (H)
[email protected]
March 2015
Abstract:
This paper provides empirical evidence on the impact of copyright regimes on the incentives of
U.S. multinational firms to transfer technologies and invest abroad. Copyright protection in the
host countries has a positive association with foreign direct investment in the information
industries and encourages parent companies in these industries to license their creative works to
unaffiliated parties. The effect is stronger for firms that have greater shares of copyright sales in
the domestic (U.S.) market, indicating that foreign copyright protection matters relatively more
to those industries that demonstrate greater dependence on copyright protection at home.
Expansions in the size of a host country’s creative industry encourages the affiliates of parent
companies in supporting industries – that is, industries outside the traditional copyright sector
that produce complementary goods and services – to expand their capital stock, employment,
sales, and eventually their research and development (R&D). This study shows that copyright
protection can also spur industrial development and facilitate the technological development of
developing countries.
The statistical analysis of firm level data on U.S. multinational companies and their foreign
affiliates was conducted at the Bureau of Economic Analysis, United States (U.S.) Department of
Commerce, under arrangements that maintain legal confidentiality requirements. Views
expressed in this paper are those of the author and do not necessarily reflect official positions of
the U.S. Department of Commerce.
2 I. Introduction
This paper studies the effects of copyright protection on the technology transfers and
investments of U.S. multinational firms.
The literature on intellectual property rights and
multinational firms has thus far focused on patent protection and on companies in the
manufacturing sector.1 The attention on patents reflects a view that technological innovation is
driven primarily by inventions (for example, machinery and chemicals) and that the key source
of research and development (R&D) and patentable inventions is the manufacturing sector. The
copyright industry is viewed as producing cultural goods (arts, music, films) that may not relate
as directly to national productivity as scientific goods.2 However, this view is rather narrow.
Certain copyrightable works directly affect innovation and production activities, such as software
and databases. Moreover, spillover effects can arise between industries; that is, the demand for
creative works could influence the demand for goods and services produced by other industries,
such as high-technology. These other industries support the traditional copyright industries in
that they produce technologies used to enhance the value of creative works.3 The copyright
regime therefore has the potential to affect the incentive these supporting industries have to
invest in and disseminate complementary technologies.4
Using data on U.S. parent companies in both the copyright-related industries and
supporting industries, I study how the strength of copyright protection and the size of the
copyright market in host countries affect the technology transfers of U.S. firms – namely their
foreign direct investments and unaffiliated licensing – and the investment activities of their
affiliates. The study relates to recent research on the effects of intellectual property rights on
economic development. Multinational technology transfers and investments are key sources of
3 knowledge capital and productivity growth.5 Furthermore, there is ongoing debate on whether a
strengthening of intellectual property protection creates mutual benefits for both developed and
developing countries, or whether the effects are asymmetric.6 This paper presents evidence for
U.S. parent firms operating in both developed and developing countries.
Again, the key value added of this paper is that it focuses on copyright protection and it
broadens the estimation of economic impacts beyond the traditional copyright industries. Since
2000, copyright laws around the world have changed significantly to meet the needs of the
information and digital age (U.S. Department of Commerce, 2013).
Yet, evidence-based
research on the effects of shifts in copyright laws is lacking (Hargreaves, 2011). This paper is
the first to provide international firm-level panel data evidence on the economic impacts of the
copyright system. Previous empirical studies have used highly aggregated panel data (see Smith
et al., 2009 and Png and Wang, 2009) or focused on a single country, namely the U.S. (see Baker
and Cunningham (2006, 2009) and Ku et al., 2009). Other studies have focused on the effects of
copyright laws on a particular type of creative work – songs, books, and cinema (see Heald,
2008, Li et al. 2013, Liebowitz, 2008, and Oberholzer-Gee and Strumpf, 2007). Previous
research has also included cross-country studies on the economic contribution of the copyright
industries.7 These studies are invaluable for measuring the share of creative industries in the
national economy, but they do not provide any causal analyses, such as the impact of policy
changes on the growth of creative industries.
This paper is organized as follows: the next section discusses the methodology, section
III discusses the data and provides some descriptive statistics, and section IV contains the main
empirical results. Section V provides concluding thoughts.
4 II. Conceptual Framework
I model copyright protection as having both a direct and indirect effect on multinational
technology transfer. The direct effect is that copyright protection affects technology transfers
from companies operating in the copyright industries. The indirect effect is that as the copyright
industry expands in the host country, affiliates in other industries that produce goods and
services that complement creative works have an incentive to invest in new equipment and
technology, or expand their operations, controlling for other factors.
The first regression equation measures the impact of host country copyrights on inward
technology transfer:
(1) ln(TECHint) = i + n + t1ln(COPYnt) +  Xint + int where TECH is either FDI or unaffiliated (or arms-length) licensing by a U.S. parent firm, and
COPY is the index of copyright protection. ln denotes the natural log function, and the subscript
i indexes the firm, n country, and t time (or year). The intercepts i, n, and t are the firm fixed
effects, country fixed effects, and time fixed effects, respectively, which control for unobserved
factors. (It is not necessary to control for regional fixed effects – for Africa, Asia, Canada,
Europe, Latin America, and Middle-East – since these are collinear with the country fixed
effects). X is a vector of control variables, such as GDP; and  combines all remaining omitted
factors that affect technology transfers. Equation (1) will be estimated for a sample of parent
firms in the copyright-related industries. Moreover, equation (1) will be estimated separately for
developed countries and developing.
5 A key source of variation is the divergent levels of copyright protection across countries
over time. However, COPY could be related to other institutional and policy developments.
Even if we can control for these other developments, the coefficient of COPY will not be
measured precisely if it is correlated with these other control variables. A sharper way to
estimate the causal effects is to introduce systematic variations among industries over the
importance of copyright protection. For example, two recent empirical studies on patents have
‘conditioned’ the effects of patent rights on the effectiveness of patents by industry, which are
known to vary (for example, between pharmaceuticals and industrial machinery). Bilir (2014),
for example, uses the patent rights variable interacted with a variable measuring product life.
The reasoning is that patents matter less to industries with relatively short technology cycles, as
obsolescence is likely to occur before imitation. Ivus, et al. (2015) use the interaction between
patent protection and technological complexity. Since complex technologies act as a natural
barrier to imitation, patents matter less to complex industries. In both of these studies, the
identifying assumption is that product life cycle or technological complexity is exogenous (or
insensitive) to variations in institutions and economic development abroad.
I follow a similar strategy in taking the interaction between the COPY variable and a
variable that measures a firm’s sensitivity to copyright protection. What I employ is the ranking
of ‘copyright’ sales in the U.S. (domestic) market by firm; for example, firm x sells the most
copyrighted works in the U.S., followed by firm y, and so forth. Of course, the copyright-related
industries have the most sales of copyrighted works, but there is variation within those industries
by firm; moreover, even non-traditional copyright industries, such as computer equipment or
energy, have ‘some’ sales of copyrighted materials like software or performances, albeit very
small. This rank variable is therefore suitable for identifying which firms are more likely to be
6 sensitive to copyrights. And quite importantly, because this variable is based on U.S. market
shares, it is by construction not dependent on foreign institutional and economic developments.
As Bilir (2014) puts it, we measure the variable “with U.S. data and apply [it] to explain nonU.S. outcomes.” Equation (1) is then modified as follows:
(2) ln(TECHint) = i + n + t + 1ln(COPYnt) + 2ln(COPYnt) x Rankit +  Xint + int where Rankit is the sales rank of firm i in the copyright-related industries. The rankings are
allowed to vary over time. More specifically, firms within the copyright-related industries were
sorted in order of domestic (U.S.) copyright sales, and a median rank was determined. For a firm
rank that is equal to or below this median, Rankit = 1; for ranks above the median, Rankit = 2.
Thus, firms were separated into two groups: either a high copyright sales group or a low one.
The ranking was recalculated for each year of the sample period.
Indirectly, copyright protection can also stimulate investments and production activities
in industries that are complementary to the copyright sector.
By reducing prospects for
imitation, copyright protection has a market expansion effect, equivalent to an increase in the
demand curve facing copyright holders. This in turn has downstream effects for firms in
supporting industries that either provide inputs into the production of creative works or produce
outputs used in the consumption of creative works.
Thus, the second regression equation
measures the impact of copyright market size on foreign affiliate activity in other industries:
(2) ln(INVint) = i + n + t + 1ln(MKTnt) +  Xint + int
7 where INVint denotes the investment activity of the parent company i or its affiliates in country n
at time t. For example, INV could also be technology transfers, like FDI or unaffiliated licensing
by the parent company in these other industries, the capital stock, employment, sales, or the
research and development (R&D) of the parent’s affiliates in the host country.8 MKTnt is a
variable that measures the total sales of the copyrighted-related industries in the host country n at
time t. Specifically, the copyright market size is obtained by summing the sales of firms in the
copyright-related industries (NAICS codes 5111 – 5191, inclusive) in each country and year.9
III. Data Sources
The data on multinational investments and technology transfers come from a micro
database of U.S. parent companies with foreign direct investments and operations around the
world. The data are collected by the U.S. Bureau of Economic Analysis (BEA) in its benchmark
and annual surveys of the operations of U.S. multinational companies, in its quarterly balance of
payments survey of U.S. direct investment abroad, and in its annual and quarterly surveys of
U.S. international services transactions. The BEA surveys cover both direct investment activities
abroad and service transactions, such as the licensing of intangible assets.
One set of surveys (denoted by BE-11) covers the operating data of parent and affiliate
firms. Another (survey BE-577) covers data on foreign direct investment, and another set
(surveys BE-93 and BE-125) covers cross-border transactions, such as licensing by type of
intangible asset (e.g., industrial processes, trademarks, and copyrighted works, such as books,
films, broadcasting, performances, software, and other).
8 I have matched these different surveys, using firm-level identification codes, and retained
those firms that have the relevant data across those surveys, such as sales, production,
employment, capital stock, tax rates, FDI, R&D, and licensing. I have also incorporated external
(non-BEA) data, such as indicators of copyright protection (discussed below) for the policy
variables of interest and national level variables, such as gross domestic product (GDP) and the
size of the national copyright market. Appendix I provides a complete list of the variables and
the data sources used in this paper.
The unit of analysis is the firm. There are 1,223 parent companies in the sample from
three broad industrial groups: copyright, complementary (largely high-technology companies),
and professional, scientific, and technical services. These firms operate in 88 countries, 23 of
which are developed and 65 developing.10 These countries account for more than 97% of the
observations on (or incidences of) U.S. foreign direct investment abroad. The time period
mostly covered is 1989 – 2011 annually, except for licensing data which begin in 1992 and FDI
data in 1994. Appendix I shows the countries in the sample and the industries covered.
The index of copyright protection has been co-developed with Tad Reynolds (see
Reynolds, 2003 and Park, 2005).
The index consists of four components:
Coverage and
Duration; Usage; Enforcement; International Agreements. Each of these components in turn
contains several features. The score for each component is the fraction of features that a country
provides in a given time period. Hence, each component’s score ranges from zero to one. The
overall score in the index is given by the sum of the component scores, and hence ranges from
zero (lowest) to four (highest). Appendix II provides the structure of the index of copyright
protection and scoring methodology.11 Figure 1 shows the trend in the index of copyright
protection by level of economic development.
There are gaps between developed and
9 developing countries. The level of protection is generally lower in the poorer and middleincome economies. However, the gap has narrowed over time as global agreements such as
TRIPS and the WIPO treaties resulted in institutional changes within the developing world.
Another variable used in the empirical analysis is the national size of the copyright
market. For this, I used the total sales in the information/media and software industries. This is
meant to capture the “demand” for copyrighted products. The data for this come from Thomson
Datastream Worldscope.12
Table 1 contains some descriptive statistics of the firms and countries in the sample. The
objective of this table is to provide a summary of the characteristics of firms that are in the
sample. The table shows the intensity of technology transfer – that is, the ratio of foreign direct
investment to parent output, as measured by gross product (or value added), and the ratio of
unaffiliated licensing to parent gross product, by the level of economic development of the host
countries. It also compares the average R&D intensity, capital per worker, and productivity of
the parent company and its affiliates by the level of economic development of the host country.
Productivity here is measured as gross product per worker. All of these firm-level descriptive
statistics are shown by industry group:
the copyright-related industries, complementary
industries, and professional, scientific, and technical industries.
Clearly, the levels of technology transfer by U.S. firms are higher in the developed world.
The intensity of FDI is highest in the complementary high-tech, manufacturing industries in both
developed and developing countries. It is about $8 of FDI stock in the developed world per $1
of parent output in the U.S., and about $3 of FDI stock in the developing world per $1 of parent
output in the U.S. By this measure of intensity, FDI in the copyright industries in the developing
world is about one-fifth of that in the developed world. One reason for this, among others, may
10 be the weaker levels of copyright protection in the global South. U.S. companies’ international
licensing suggests a different pattern. The intensity of U.S. firms’ unaffiliated licensing is
highest among the copyright-related industries in the developed world – more than double the
intensity within the complementary industries.
In the developing world, the intensity of
unaffiliated licensing is similar between the complementary and copyright industries, and far less
than what occurs in the developed world.
Parent companies in general have higher R&D intensities than their affiliates. Parent
companies in the complementary and professional and scientific industries devote a greater share
of resources to research and development.13 This is the case for their affiliates in developed
countries. The affiliates in the copyright sector conduct relatively less R&D as a percentage of
sales. (This raises the question of how to define and measure research and development in the
creative industries.14) But in developing countries, affiliate firms in the copyright industry have
higher intensities of R&D.
U.S. parent companies also generally have higher capital-labor ratios and productivity
than their affiliates, except in the complementary industries in other developed countries, where
local affiliates are likely to have skill sets and other advantages that attracted FDI.15 Affiliates in
developed countries have greater capital per worker as well as productivity than their
counterparts in developing countries. Developed countries have larger markets in terms of gross
domestic product (GDP), stronger copyright regimes than in developing countries, and a
copyright market that is more than 6 times the size of that in developing countries.
Based on licensing data, Table 2 shows how the different industries produce different
types of intellectual property in developed and developing countries. What is interesting is that
the licensing of copyrighted works is not restricted strictly to the copyright-related industries.
11 For example, newspaper, periodical, book, and database publishers derive income from licensing
their printed works, like books, but they also derive nearly 39% of their licensing income from
industrial processes in developed countries and nearly 15% of it in developing countries. While
the computer and peripheral equipment manufacturing sector derives almost two-thirds of its
licensing revenue in developed countries from industrial processes, it also obtains about 3% from
trademarks and a third from software. Its share from industrial processes in developing countries
is much higher, at 90%.
Communications equipment manufacturers derive, of course, a
substantial share of licensing revenue from industrial technologies, but they also earn a quarter of
it from performances in developed countries and 11% of the same in developing countries.
Thus, the table shows that even firms in the high-technology industries can and do depend upon
copyrights. Of course, some sectors derive their income wholly from copyrights, such as the
sound recording industries, and vastly from patent rights (via industrial processes), such as the
semiconductor and navigational and control instruments industries.
Table 3 provides another angle from which to see how diverse the dependence on
copyrights may be. The table ranks industries according to their sales of copyrightable works at
home (in the U.S. market) and in the world. The domestic ranking is obtained by examining the
sales of copyright-related industries – specifically the information sector – every year from 1989
to 2011.
The table shows the overall rank over that period.
The worldwide ranking is
constructed by examining the sales of U.S. parent firms, by industry of the U.S. parent and by
industry of sales, specifically focusing on the information sector which covers copyright-related
goods and services. This enables us to see the amount of sales for each industry that comes from
copyright-related products. Obviously, a large share of sales of firms in the copyright industry
comes from selling copyrightable works, but even firms outside the copyright sector have some –
12 albeit relatively small – sales that are copyright-related – for example, broadcasting, publishing,
internet, and data processing. The data on sales of U.S. parent firms by industry of parent
company and by industry of sale are available every year. Table 3 shows the overall ranking of
world copyright-related sales by U.S. parent industry.
I use these rankings later on as a proxy for industrial dependence on copyright protection,
specifically using them to condition the impact of copyright protection on international
technology transfer (as discussed in section II). For now, it is interesting to note that copyright
protection can be useful beyond the copyright sector, such as computer systems design and
management, scientific, and technical consulting services.16
IV. Empirical Results
Figure 2 provides a preview of the empirical results. For each industry group – copyright
industries, complementary industries, and professional, scientific, and technical industries – we
can examine a variable before and after a copyright reform. Each country in the sample has been
assigned a ‘reform’ year, the year in which a major increase in copyright strength occurred. This
is based on information used to construct the index of copyright protection. A dummy variable is
then constructed in which the variable equals zero before the episode of a major shift in
copyright protection and equals one thereafter. There are at least three limitations with this
exercise. First, changes in copyright laws and regulations are ongoing. They do not just occur
once during a sample period. Second, the dummy variable does not measure the intensity of the
shift in copyright policies. It is merely a binary (0, 1) variable. Third, this exercise does not
control for other factors that may have influenced changes in the outcome variables. For this we
13 turn to the regression analysis using the index of copyright protection. This graphical exercise
merely provides a first-hand look at the trends.
The variables examined in Figure 2 are the key technology transfer measures: FDI and
unaffiliated licensing by U.S. parent firms in developed and developing countries. Each bar in
the figure shows the ratio of the average value of a variable after a major increase in copyright
strength to the average value of the variable before the event. The critical value of each bar is
one, which would indicate no change in the average volume of technology transfer after a major
increase in copyright strength. The figure shows diverse experiences. FDI and licensing both
increased in the copyright sector after a major reform in developed and developing countries.
FDI increased in the professional and scientific services industries in both developed and
developing countries, but licensing fell in this sector in developed countries and only modestly
increased in developing countries. For firms in the complementary industry, their unaffiliated
licensing increased in both developed and developing countries after those countries
implemented major increases in copyright strength, but their stock of foreign direct investment is
lower post-reform.
These broad trends in technology transfers suggest that in the complementary industry,
parent firms may have substituted away from FDI, which requires heavy investments in capital,
towards unaffiliated licensing, which involves less setup costs but higher imitation risk since
technological know-how is transferred to parties external to the firm. But it would make sense
for firms to switch to the latter mode of technology transfer and share rents with licensees instead
of exploiting knowledge assets in-house if increased copyright strength and enforcement reduces
imitation risks and raises the bargaining power of the copyright owner. In the professional and
scientific services industries, it appears that firms substituted away from licensing towards FDI.
14 This industry is knowledge-intensive to begin with and service-oriented. Increased copyright
strength may have favored the investment in, or acquisition of, local businesses to take advantage
of skilled local workers in an in-house setting. To the extent that this is so, the increase in
professional and scientific FDI is especially greater in developed countries where local skilled
personnel are relatively more abundant.
i. Technology Transfer in the Copyright Industries
The first set of regression analyses focuses on the copyright-related industry, and asks to
what extent copyright protection in the host country influences technology transfer from U.S.
multinational parent companies, via FDI and arms-length licensing, controlling for other factors.
Table 4 contains the results. The first four columns relate to the developed country sample and
the remaining four to the developing country sample. The key independent variable of interest is
the index of copyright protection in the destination country. Control variables include the market
size of the host country, as represented by the real GDP of the host nation, the tax rate, and
capital-labor ratio. Technology transfers may arise due to tax incentives and wage conditions.
Since wages are endogenous to technology transfer – that is, transfers can raise the demand for
labor – wages are instrumented by the capital-labor ratio, which affects the marginal productivity
of labor. There are also other possible control variables, which are not observed. Hence, the
regression models include year, country, and firm fixed effects.17
In column 1 of Table 4, the copyright protection variable has a positive association with
unaffiliated licensing but is not statistically significant at conventional levels. The limitation of
this specification is that it does not take into account the variation in the importance of copyright
15 protection across firms. Hence, in column 2, the copyright protection variable is interacted with
market rank, our proxy for the importance of copyright protection across firms. The interaction
allows us to control for these other general economic and institutional changes which are
correlated with copyright protection, and thereby derive the impact of copyright protection
conditional on a firm’s dependence on such protection.
Since the market rank variable is a binary variable taking on the values 1 or 2, the
coefficient estimate of the copyright protection variable in column 2 of Table 4 is 0.699 (=1 x
0.699) for firms with relatively low domestic sales of copyright-related works and 1.398 (=2 x
0.699) for firms with relatively large domestic sales of copyright-related works. (Note that the
coefficient estimate of the copyright index itself – namely -0.413 – is treated as equal to zero
since it is not statistically significant.) Thus, the quantitative impact of copyright protection on
technology transfer via licensing is greater for firms that are more dependent on copyright
protection. For these firms, a 1% increase in the index of copyright protection is associated with
a 1.398% increase in their licensing in a developed country.18
Columns 3 – 4 of Table 4 shift to FDI as the dependent variable. In this case, copyright
protection has a significant negative association with FDI. The negative impact, though, is
smaller for those firms with greater dependence on copyright protection. For both groups of
firms, the overall effect of copyright protection is to reduce FDI in the copyright industries in the
North. The negative influence may reflect substitution effects between FDI and licensing (see
Ivus et al., 2015); that is, as copyright protection is more secure, firms avoid the setup costs of
FDI and choose to exploit their intellectual property via licensing and sharing the rents with local
licensees who may have better access to the local distribution network.
16 In columns 5 – 8 of Table 4, the attention turns to the developing country sample. For
licensing (see columns 5 – 6), the results are qualitatively similar to those found for the
developed country sample. Copyright protection in the South is positively and significantly
associated with the licensing of copyrighted works by U.S. companies, controlling for other
factors. The effect, again, varies by the copyright sales rank of the firm – that is, by the firm’s
relative dependence on copyright protection.
The results on FDI in developing countries, though, contrast sharply to what was found
for the developed country sample. In this case, stronger copyright protection unambiguously
attracts foreign direct investment into the local copyright sector. This includes the setting up of
sales and distribution outlets, production facilities, cable and transmission networks, venues for
performing arts, and other infrastructure. Taking into account the market sales rank of firms
makes no difference to the calculation of the impact of copyright protection on FDI. Whether a
firm is above (or below) the median dependence on copyright protection, the impact of the host
country’s copyright regime on FDI is similar between the two groups of investors. As for the
other independent variables in Table 4, market size (GDP) generally has a positive influence on
inward technology transfer to the host countries. Tax rates are not generally an important
influence, while capital per worker is mostly a positive influence.
ii. Multinational Investments and the Copyright Market
The attention now turns to industries outside the copyright industry; namely, the
complementary industries and the professional, scientific, and technical industries. The objective
here is to determine the extent to which the size of a nation’s copyright market creates incentives
17 for firms in these other industries to invest, controlling for other influences on investment. Table
5A shows the results for the developed country sample and Table 5B for the developing. In each
of these tables, columns 1 – 6 are the results for the complementary industries and columns 7 –
11 for the professional, scientific, and technical. Each column corresponds to a dependent (or
outcome) variable of interest: licensing, FDI, affiliate R&D, capital, employment, and sales;
however, licensing is omitted for the professional and scientific industries since the sample size
was too small. The key variable of interest in these tables is the size of the copyright sector in the
host country. The control variables are the same as before: GDP, tax rates, capital per worker,
and various fixed effects.
In developed countries, the size of the host country’s copyright market exerts a positive
and significant influence on the licensing of U.S. parent firms, and the local employment, capital,
and R&D of the affiliates of the parent firms. This indicates that an expansion in the sales of
creative works contributes to knowledge transfer, innovation, and production in the
complementary industries, such as computer equipment, video devices, and other electronic
equipment and components. Affiliate sales in these industries have a positive association with
copyright sales, but the relationship is not statistically significant. The copyright market has a
significantly positive effect on the capital stock of affiliates in the professional and scientific
sector in the North, but has a weakly positive effect on this sector’s R&D, employment, and
sales. The stock of FDI in this sector seems crowded out by copyright expansion, perhaps
turning parent firms to seek alternative modes of servicing, like licensing. This result differs
from the trends shown in Figure 2, which I mentioned does not control for other factors.
In developing countries, the size of the copyright market has a positive and significant
influence on the FDI, physical capital stock, employment, and sales of firms in both the
18 complementary industries and professional, scientific, and technical services sector. The positive
effect on FDI in the professional and scientific industry is consistent with the trend shown in
Figure 2. The size of the copyright market does not directly affect affiliate R&D in either the
complementary or professional/scientific industries. However, this is not to say that there is no
innovation effect. R&D is indirectly affected since the size of the copyright market positively
affects affiliate sales, which in turn is a significant determinant of R&D.
As for the control variables in Tables 5A-B, GDP typically has a positive influence on
parent and affiliate activity.19 Capital per worker typically has a positive influence on affiliate
activity, but a negative one on R&D. This may reflect tradeoffs between the two kinds of
investment: physical versus knowledge. Tax rates again are mostly a weak economic influence
on parent and affiliate activity.
iii. Extensive Margins
The focus until now has been on the volume or intensity of technology transfer and
investments by firms. Table 6 provides another perspective; namely, the effect of copyright
protection or market size on the decision to enter a market. The dependent variable is a binary
variable that equals one if FDI occurred, and zero otherwise. The objective here is to determine
whether copyright-related factors influenced a parent firm to enter a foreign market. That is,
firms choose whether to acquire or invest in an affiliate in a country (extensive margin) as well
as choose the degree or intensity of investment (intensive margin). It is useful to see how
copyright regimes matter to both kinds of decisions. Columns 1 – 4 of Table 6 show the results
for the developed country sample and columns 5 – 8 for the developing. For each of these
19 samples, all three industry groupings are considered:
copyright, complementary, and
professional/scientific.
If market rank (or the relative dependence on copyright protection among firms) is
ignored, copyright protection appears to have a negative effect on a company’s decision to enter
a developed country market. That is, strong levels of copyright may encourage firms to export
from home (U.S.) rather than seek to establish facilities abroad. However, once market rank is
controlled for, the results show that for firms that are more dependent on copyright protection,
stronger levels of protection in the host country would create incentives for companies to engage
in FDI in developed countries. The net coefficient estimate of the index of copyright protection
here is 0.053 (= 2x0.455 – 0.857). Likewise, an expansion in the market for creative works in
the developed countries would also incentivize parent companies in the complementary
industries to choose to engage in FDI in those countries. But that same expansion would lower
the probability that companies in the professional, scientific, and technical industries would
engage in FDI, and instead choose an alternative (exporting or arms-length licensing). This is
consistent with the finding in Table 5A on the volume of FDI in the professional, scientific, and
technical industries.
In developing countries, copyright protection positively influences U.S. companies to
enter into the copyright market of the South and establish affiliates or subsidiaries. The market
rank of a firm does not have any relevance in determining the impact of copyright laws. The
market size of the copyright sector in developing countries also increases the likelihood that
parent firms will enter the complementary or professional, scientific, and technical industries of
the South. Comparing the results in Table 6 to those of Tables 5A and 5B, it can be seen that an
expansion in the size of the copyright market encourages firms to make a presence in the non-
20 copyright-related industries in developing countries; that is, market size has a significant effect at
the extensive margin. In contrast, at the intensive margin, market size largely has an effect on
the volume of FDI in the professional and scientific sector, but not in the complementary
industries, where a stronger copyright regime favors licensing over FDI. In the developed
countries, the size of the copyright market also primarily motivates firms to have a presence in
the complementary industries but has an insignificant effect on the quantity of FDI stock
committed. Thus, comparing the intensive and extensive margins of FDI shows that copyright
regimes can have complex effects on firms’ investment decisions, and that it is important to
investigate the different channels of influence.
V. Conclusion
According to published figures from the U.S. Bureau of Economic Analysis, the total
U.S. direct investment position abroad in the copyright sector (namely, the information
industries) in 2013 was more than $157 billion dollars on a historical cost basis.20
For
perspective, this was 25% of that of the manufacturing industry. In 2013, the total charges for
the licensing of intellectual property by U.S. firms were about $129 billion in current dollars.
The copyright-related industries – software, audio-visual and related products, such as movies,
television, books, sound recordings, and the broadcasting and recording of live events –
accounted for 47% of that amount.21
In comparison, the licensing of industrial processes
accounted for about 35%. Thus, the copyright-related industry plays a prominent role in U.S.
technology transfer. Yet, the existing economics literature has under-explored the impact of
copyright systems and policies.
21 This study was a first international firm-level exploration of the effects of copyright laws
and regulations on U.S. technology transfers and affiliate investments. The study finds that
copyright protection has a significant positive association with the FDI and unaffiliated licensing
of parent companies, controlling for other factors and conditioning on the relative importance of
copyright protection. As in previous work on patent protection, the importance of copyright
protection varies by industry.
The effects of copyright systems go beyond the traditional
copyright sector. The study finds that an expansion in the market for creative works spills over
to other industries, particularly those classified as complementary or supporting, such as
computers and peripheral equipment, telecommunications, semiconductors, and professional,
scientific, and technical services. Changes in copyright laws and market size affect not only the
volumes of technology transfer and investments, but can also affect decisions to enter a foreign
market (i.e., the extensive margin). This suggests the possibility of threshold effects, where a
critical level of protection or market size is required for firms to incur the setup costs of FDI.
This study has implications for developing economies. The latter are more reliant upon
foreign sources of technology since indigenous innovative and absorptive capacities are nascent.
The results show that the copyright system in the South is a significant determinant of inward
technology transfers and investments not only in the copyright industry but in other hightechnology related sectors. Future work could explore in more detail how knowledge diffuses to
local firms, and how this knowledge capital contributes to their productivity and innovation.
22 References
Allen Consulting Group (2001), The Economic Contribution of Australia’s Copyright Industries,
Australian Copyright Council.
Baker, Matthew and Cunningham, Brendan (2006), “Court Decisions and Equity Markets:
Estimating the Value of Copyright Protection,” Journal of Law and Economics, Vol. 49, pp. 567596.
Baker, Matthew and Cunningham, Brendan (2009), “Law and Innovation in Copyright
Industries,” Review of Economic Research on Copyright Issues, Vol. 6, No. 1, pp. 61-82.
Bilir, Kamran L. (2014), “Patent Laws, Product Lifecycle Lengths, and Multinational Activity,”
American Economic Review, Vol. 104, No. 7, pp. 1979 – 2013.
Branstetter, Lee, Fisman, Raymond, Foley, Fritz, and Saggi, Kamal (2011), “Does Intellectual
Property Rights Reform Spur Industrial Development?” Journal of International Economics Vol.
83, No. 1, pp. 27-36.
Greenhalgh, Christine and Rogers, Mark (2010), Innovation, Intellectual Property, and
Economic Growth, Princeton University Press.
Handke, Christian (2011), Economic Effects of Copyright: The Empirical Evidence So Far,
National Academies Report.
Hargreaves, Ian (2011), Digital Opportunity: A Review of Intellectual Property and Growth,
Report to the United Kingdom Government.
Heald, Paul (2008), “Testing the over- and under-exploitation hypotheses: Bestselling musical
compositions (1913-32) and their use in cinema (1968-2007),” University of Georgia Legal
Studies RP 08-006.
Ivus, Olena, Park, Walter, and Saggi, Kamal (2015), “Patent Protection and the Industrial
Composition of Multinational Activity: Evidence from U.S. Multinational Firms,” Working
Paper.
Ku, Raymond, Sun, Jiayang, and Fan, Yiying (2009), “Does Copyright Law Promote Creativity?
An Empirical Analysis of Copyright’s Bounty,” Vanderbilt Law Review, Vol. 62, No. 6, pp.
1669 – 1746.
Landes, William and Posner, Richard (2003), Economic Structure of Intellectual Property Law,
Harvard University Press.
Lerner, Joshua (2011) “The Impact of Copyright Policy Changes on Venture Capital Investment
in Cloud Computing Companies,” Harvard Business School Working Paper.
23 Li, Xing, MacGarvie, Megan, and Moser, Petra (2013) “Dead Poet’s Property – Do Stronger
Copyrights Increase Price?” Stanford University, Department of Economics, Working Paper.
Liebowitz, Stan J. (2008), “Is the copyright monopoly a best-selling fiction?” University of
Texas at Dallas, School of Management, Working Paper.
Maskus, Keith (2012), Private Rights and Public Problems: The Global Economics of
Intellectual Property in the 21st Century, Peterson Institute for International Economics,
Washington, D.C.
Oberholzer-Gee, Felix and Strumpf, Koleman (2007), “The Effect of File Sharing on Record
Sales: An Empirical Analysis,” Journal of Political Economy, Vol. 115, No. 1, pp. 1 – 42.
Park, Walter G. (2005), “Do Intellectual Property Rights Stimulate R&D and Productivity
Growth? Evidence from Cross-national and Manufacturing Industries Data”, in Jonathan
Putnam, ed. Intellectual Property and Innovation in the Knowledge-Based Economy, Industry
Canada, Ottawa, pp. 9:1 – 9:51.
Park, Walter G. and Douglas Lippoldt (2005), ‘International Licensing and the Strengthening of
Intellectual Property Rights in Developing Countries during the 1990s’, OECD Economic
Studies, 40: pp. 7-48.
Png, Ivan and Wang, Qiu-hong (2009), “Copyright duration and the supply of creative work:
Evidence from the movies,” National University of Singapore Working Paper.
Reynolds, Taylor (2003), Quantifying the Evolution of Copyright and Trademark Law, PhD
thesis, American University.
Siwek, Stephen (2006), Copyright Industries in the U.S. Economy, Economists Incorporated,
Washington, D.C.
Smith, Pamela, Da’ar, Omar, Monroe, Kevin, Nunez, Fabricio, and Tuttle, Charlotte (2009),
“How Do Copyrights Affect Economic Development and International Trade,” Journal of World
Intellectual Property, Vol. 12, No. 3, pp. 198 – 218.
U.S. Department of Commerce (2013), Copyright Policy, Creativity, and Innovation in the
Digital Economy, Internet Policy Task Force, Green Paper.
Wall Communications (2004), The Economic Contribution of Copyright Based Industries in
Canada. Prepared for Canadian Heritage, World Intellectual Property Office, Geneva.
Zeile, William J. (2014), “Research Spotlight: Multinational Enterprises and International
Technology Transfer,” Survey of Current Business Online, Bureau of Economic Analysis, Vol.
94, No. 9. https://bea.gov/scb/toc/0914cont.htm
24 Appendix I. Data Sources and Composition of Dataset
A. Data Description
Variable
Stock of Foreign
Direct Investment
(FDI)
Unaffiliated
Licensing
Parent R&D, Sales,
Value Added
Affiliate R&D,
Sales, and Value
Added
Affiliate Capital and
Employment
Description
Owner’s Equity plus Intercompany Debt Receivables
less Intercompany Debt Payables, converted from book
value to current value, before converting to real PPP
dollars.
Royalties and Licensing Receipts from Unaffiliated
parties (Firm Level)
Research and Development (R&D) Performed by
Parent Company and Total Sales and Gross Product of
Parent Company (Firm Level)
R&D, Sales, and Gross Product of the foreign affiliates
of the Parent Company (Firm Level)
Net Property, Plant, and Equipment and Number of
Employees of Affiliates (Firm Level)
Net Income
Net income of Foreign Affiliates (Firm Level)
Income Taxes
Income taxes of Foreign Affiliates (Firm Level)
Copyright Protection
Index of the Strength of Copyright Protection
(Country Level), updated to 2013
Gross Domestic Product in constant 2005 dollars and
Purchasing Power Parity conversion factor (GDP) to
market exchange rate ratio (Country Level)
Sum of company sales in the information, media, and
software industry aggregated to the national level
(Country Level)
GDP, PPP
Conversion Factor
Size of Copyright
Market
Source
BEA Quarterly Balance of
Payment Surveys of USDIA (BE577 surveys)
BEA Quarterly Survey of
Transactions in Selected Services
and Intellectual Property with
Foreign Persons (BE-125
surveys) and Annual Survey of
Royalties, Licensing Fees, and
Other Receipts and Payments for
Intangible Rights between U.S.
and Unaffiliated Foreign Persons
(BE-93 survey)
BEA Annual Surveys of USDIA
(BE-11 surveys) and Benchmark
Surveys of USDIA (BE-10)
BEA Annual Surveys of USDIA
(BE-11 surveys) and Benchmark
Surveys of USDIA (BE-10)
BEA Annual Surveys of USDIA
(BE-11 surveys) and Benchmark
Surveys of USDIA (BE-10)
BEA Annual Surveys of USDIA
(BE-11 surveys) and Benchmark
Surveys of USDIA (BE-10)
BEA Annual Surveys of USDIA
(BE-11 surveys) and Benchmark
Surveys of USDIA (BE-10)
Based on Park (2005), Reynolds
(2003)
World Bank World Development
Indicators
Thomson Datastream, Worldscope
(various years)
B. Country Coverage
Developed Countries (69% of Sample)
Australia
Austria
Belgium
France
Germany
Greece
Italy
Japan
Luxembourg
Portugal
Spain
Sweden
Canada
Iceland
Netherlands
Switzerland
Denmark
Finland
Ireland
Israel
New Zealand
Norway
United Kingdom
25 Developing Countries (31% of Sample)
Algeria
Argentina
Bolivia
Chile
China
Colombia
Czech Republic Dominican Rep Ecuador
Fiji
Gabon
Ghana
Honduras
Hong Kong
Hungary
Kenya
Korea, South
Liberia
Mexico
Morocco
Nicaragua
Papua NG
Paraguay
Peru
Russia
Saudi Arabia
Senegal
Sri Lanka
Taiwan
Thailand
Ukraine
Uruguay
Venezuela
Brazil
Costa Rica
Egypt
Guatemala
India
Malaysia
Nigeria
Philippines
Singapore
Trinidad Tobago
Vietnam
Bulgaria
Cote D’Ivoire
El Salvador
Guyana
Indonesia
Malta
Pakistan
Poland
Slovakia
Tunisia
Zimbabwe
Cameroon
Cyprus
Ethiopia
Haiti
Jamaica
Mauritius
Panama
Romania
South Africa
Turkey
C. Industry Coverage (with North American Industry Classification (NAICS) Codes)
Copyright-related Industries
5111 Newspaper, periodicals, books, and directories
5112 Software publishers
5121 Motion picture and video industries
5122 Sound recording industries
5151 Radio and television broadcasting
5152 Cable and other subscription programming
5161 Internet publishing and broadcasting
5171 Wired telecommunications carriers
5172 Wireless telecommunications (excluding satellite)
5174 Satellite telecommunications
5181 Internet Service Providers, Web Search Portals
5182 Data processing
5191 Other Information Services
7110 Performing Arts, spectator sports, and related
7121 Museums, historical sites, and similar institutions
Complementary Industries
3231 Printing and related support activities
3341 Computer and peripheral equipment
3342 Communications equipment
3343 Audio and video equipment
3344 Semiconductors, other electronic components
3345 Navigational, measuring, control instruments
3346 Making, reproducing magnetic/optical media
3351 Electric lighting equipment
3353 Electrical equipment
3359 Other electrical equipment and components
Professional and Scientific Services Industries
5415 Computer systems design and related services
5416 Management, scientific, technical consulting
5417 Scientific research and development
5419 Other professional, scientific, technical services
26 Appendix II: Construction of the Index of Copyright Strength
The index of copyright protection has been co-developed with Tad Reynolds.1 The index is
designed to measure the strength of copyright laws and regulations in a country during a given
year. The index covers 119 countries from 1965 – 2012 annually, depending upon data
availability. It is assumed that copyright protection is stronger if the duration of protection is
longer and covers more types of works, if exceptions for private use are limited, if strong
enforcement mechanisms are more widely available, and if the country adheres to various
international agreements on copyrights. Thus, four components comprise the index: Coverage
and Duration; Usage; Enforcement; International Agreements. Each of these four components in
turn contains several features. The score for each component is the fraction of features that a
country provides in a given time period. Hence, each component’s score ranges from zero to
one. The overall score in the index is given by the sum of the component scores, and hence
ranges from zero (lowest) to four (highest):
Coverage and Duration (x/70 years)
General
Performance
Sound
Films
Broadcasting
Computer
Sub-score: _______
Usage
Collective Licensing
Private Use
Compulsory Licensing
Sub-score: _______
Enforcement
Criminal
Preliminary Injunction
Seizure/Destruction
Anti-circumvention
Sub-score: _______
Agreements
Berne
Universal Copyright Convention (1952, 1971)
Rome
Geneva
Brussels
TRIPS
WIPO Copyright Treaty
WIPO Performances and Phonograms Treaty
Sub-score: _______
Overall score:_______
Explanatory notes:
Two important principles guided the construction of this index. First, it was not necessary to
cover every statute or case related to copyrights, but to maximize data variability as much as
possible. For example, if a provision has existed since 1924 and applied to all forms of
1
See Reynolds (2003) and Park (2005). The index has been updated to 2013.
27 copyrightable works, there is no variation in the index from considering it (e.g. definition of
originality). Second, some statutes or cases may not be relevant to determining the strength of
copyright protection; for example, works for hire or joint authorship statutes and cases have
more to do with ownership and distributional issues.
The coverage cluster shows that duration varies by type of copyright, whether general or
neighboring rights. Though many countries provide for a maximum of 50 years for the
protection of neighboring rights, the index sets 70 years as the standard. Countries that protect
all works for 70 years would therefore score a 1 for duration.
In the category dealing with public use of copyrighted works, there are three-subcomponents,
each worth 1/3 of a point. For example, collective licensing is assumed to contribute to the
strength of the owner’s protection through efficiencies in collective negotiations. The
availability of collective licensing gives a country 1/3 point. Many regimes also provide for fair
use or fair dealing, which also addresses the transactions costs of licensing, among other factors.
However, from the point of copyright strength, the more restrictive private use is the stronger the
protection. Countries with very limited exceptions (say strictly for teaching and research) and
that prohibit personal use without permission earn 0.33 points. Countries that do not mention
private use in their laws and/or permit a variety of private uses without permission earn zero.
Countries that provide mention private use and permit some enumerated list earn 1/6th of a point.
Lastly, countries that do not provide for the compulsory licensing of copyright works, say for
local translation, earn 0.33 points.
Enforcement consists of four sub-components, each of which is worth 0.25 points. A country
scores 1 overall for this component if it provides criminal penalties, in addition to civil remedies,
as a deterrent against infringement, if it provides for preliminary injunctions while a case is
pending or in process, if it allows authorities to seize and destroy infringing goods, and if laws
prohibit devices that can circumvent copy protection.
A country scores 1 for the international agreements component if it is a signatory to all of the
treaties and agreements listed, as this would signal its commitment to copyright protection for
nationals and foreigners. The Berne Convention is the first international copyright agreement
that protects literary and artistic works. The Universal Copyright Convention is administered by
the United Nations Educational, Scientific, and Cultural Organization, and provides for national
treatment. The Rome Convention deals with neighboring rights, the Geneva deals with sound
recordings, and the Brussels deals with the retransmission of satellite broadcasts. The
Agreement on the Trade-Related Aspects of Intellectual Property Rights (TRIPS) was a major
comprehensive undertaking and provides for enforcement and dispute settlement procedures.
Finally, the World Intellectual Property Organization (WIPO) Copyright Treaty and
Performances and Phonograms Treaty address copyrights and modern technologies (digital and
communications).
Table 1. Descriptive Statistics
Firm‐Level:
FDI per Parent Gross Product
Licensing per Parent Gross Product
Parent RD/Sales
Affiliate RD/Sales
Parent Affiliate Capital per Capital Parent Affiliate Labor
per Labor Productivity Productivity
Copyright‐related Industries 4.08
1.46
1.84%
0.90%
60.8
51.0
100.2
Complementary Industries
7.66
0.71
9.38%
1.24%
42.0
56.8
100.3
125.6
Professional, Scientific
7.33
0.21
5.94%
1.65%
15.1
23.4
102.5
85.6
Developing Countries
FDI per Parent Gross Product
Licensing per Parent Gross Product
Parent RD/Sales
Affiliate RD/Sales
Parent Affiliate Affiliate Capital per Capital Parent Labor
per Labor Productivity Productivity
Copyright‐related Industries 0.79
0.24
1.72%
0.93%
58.9
15.4
114.0
25.3
Complementary Industries
2.58
0.25
9.11%
0.75%
45.8
15.7
107.6
28.4
Professional, Scientific
0.77
0.07
8.36%
0.85%
16.1
4.1
142.0
18.9
Gross Domestic Product
Copyright Index
Ta xes a s a Copyright ra ti o of Net Market Size
Income
Mean
7.32E+11
2.93
0.33
Std. Dev
(1.01 E+12)
(0.51)
(0.97)
Mean
2.20E+11
1.80
0.32
Std. Dev
(6.07E+11)
(0.89)
(1.37)
Developed Countries
Country‐Level:
Developed Countries
Developing Countries
89.9
8.93E+09
(4.17E+09)
1.36E+09
(1.59E+09)
Notes: FDI denotes the stock of foreign direct investment capital. Licensing refers to the receipts of royalties and licensing fees from unaffiliated parties. Capital refers to net plant, property, and equipment. R&D denotes research and development expenditures. Productivity
is defined as gross product per worker. Gross product is the value added (i.e., measure of output) of the firm. All variables are in real
2005 U.S. dollars. Affiliate refers to the group of companies affiliated with the U.S. parent firm. GDP is also in real 2005 U.S. dollars.
Copyright Market Size is the total national sales of copyright‐related industries in real 2005 U.S. dollars. 29 Table 2. Distribution of Licensing by Type of Intellectual Property and Industrial Sector
Sectors in DEVELOPED COUNTRIES
Indus tri a l Books , Proces s es Ta pes
Tra de ma rks
Fi l ms
Perform a nces
Broa d ca s ti ng
Newspaper, periodical, book, and database publishers
38.22%
14.16%
3.49%
1.37%
0.00%
Software publishers
0.10%
Motion picture and video industries
0.01%
18.51%
34.56%
37.47%
3.54%
2.06%
1.29%
70.47%
0.07%
0.19%
Sound recording industries
42.65%
9.09%
3.68%
Softwa re
90.81%
14.62%
11.07%
Cable networks and program distribution
0.34%
0.03%
Printing and related support activities
3.49%
89.11%
Computer and peripheral equipment manufacturing
62.78%
3.34%
Communications equipment manufacturing
72.39%
Semiconductors, other electronic components
94.90%
Navigational, measuring, electromed, control inst
99.25%
0.73%
0.05%
26.74%
0.01%
4.97%
0.07%
0.23%
0.00%
0.13%
0.75%
99.45%
99.99%
0.01%
0.25%
99.75%
Scientific research and development services
100.00%
Sectors in DEVELOPING COUNTRIES
Indus tri a l Books , Proces s es Ta pes
Tra de ma rks
Fi l ms
Perform a nces
Newspaper, periodical, book, and database publishers
14.57%
29.03%
3.90%
4.47%
Software publishers
0.01%
Motion picture and video industries
0.04%
8.84%
41.40%
36.62%
9.42%
0.59%
24.21%
0.01%
56.95%
0.62%
1.13%
Sound recording industries
0.08%
7.40%
33.65%
Computer systems design and related services
Management, scientific, technical consulting services
2.21%
99.62%
Manufacturing, reproducing magnetic and optical media 0.55%
47.74%
Broa d ca s ti ng
Softwa re
Fra nchi s e Other
0.30%
4.77%
2.44%
95.22%
0.66%
100.00%
Radio and television broadcasting
4.95%
Cable networks and program distribution
0.99%
1.25%
93.76%
Computer and peripheral equipment manufacturing
90.35%
0.40%
0.24%
12.15%
99.01%
Printing and related support activities
0.03%
4.99%
9.25%
Communications equipment manufacturing
89.04%
Semiconductors, other electronic components
99.48%
0.52%
Navigational, measuring, electromed, control inst
97.62%
2.38%
0.00%
99.87%
Manufacturing, reproducing magnetic and optical media
Management, scientific, technical consulting services
0.19%
100.00%
Radio and television broadcasting
Computer systems design and related services
Fra nchi s e Other
0.10%
10.68%
0.01%
100.00%
0.08%
Scientific research and development services
Notes: The figures are an average of several years: 1992 ‐ 2003 and 2006 ‐ 2011.
0.13%
99.92%
100.00%
Table 3. Ranking of Industries by Sales of Copyrighted Works
World Rank
1
2
3
4
5
6
8
7
9
11
16
12
13
14
15
10
17
18
19
20
21
22
23
24
25
26
27
28
29
U.S. Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Industry
Cable and Other Subscription Programming
Other Information Services
Software publishers
Radio and television broadcasting
Wireless telecommunications carriers, non satellite
Internet Service Providers and Web Search Portals
Sound recording industries
Other telecommunications
Performing arts, spectator sports, and related industries
Satellite Telecommunications
Museums, Historical Sites, and Similar Institutions
Wired telecommunications carriers
Newspaper, periodical, book, and database publishers
Data Processing, hosting, and related services
Motion picture and video industries
Audio and video equipment manufacturing
Computer systems design and related services
Communications equipment manufacturing
Computer and peripheral equipment manufacturing
Printing and related support activities
Electrical equipment manufacturing
Navigational, measuring, electromedical, and control instrumen
Manufacturing and reproducing magnetic and optical media
Other professional, scientific, and technical services
Semiconductors and other electronic components manufacturin
Management, scientific, and technical consulting services
Other electrical equipment and components manufacturing
Scientific research and development services
Electric lighting equipment manufacturing
Table 4. Technology Transfer in the Copyright Industries
Developed Country sample
(1)
DEPENDENT VARIABLES: l n (Li cens i ng)
Constant
ln (GDP)
ln (Copyright Index)
(4)
ln(FDI)
l n (Li cens i ng)
(5)
l n (Li cens i ng)
(6)
(7)
ln(FDI)
(8)
ln(FDI)
‐25.785
20.881
17.891
‐56.271***
‐57.851***
‐80.120***
‐79.603***
(18.431)
(19.466)
(14.145)
(14.103)
(10.523)
(10.522)
(14.301)
(14.300)
1.104
1.186
‐0.852
‐0.740
2.250***
2.308***
2.247***
2.236***
(0.726)
(0.767)
(0.557)
(0.555)
(0.400)
(0.400)
(0.443)
(0.443)
0.247
‐0.413
‐0.596**
‐0.730**
‐0.003
‐0.358
0.494***
0.528***
(0.429)
(0.438)
(0.300)
(0.299)
(0.217)
(0.228)
(0.179)
(0.190)
Market Rank
Tax Rate (Destination)
l n (Li cens i ng)
Developing Country sample
(3)
ln(FDI)
‐23.627
ln (Copyright Index) x
ln (Capital/Labor)
(2)
0.699***
0.201***
0.370***
‐0.039
(0.076)
(0.054)
(0.070)
(0.072)
0.207***
0.206***
0.036
0.043
0.035
0.030
0.075**
0.075**
(0.052)
(0.055)
(0.055)
(0.055)
(0.022)
(0.022)
(0.031)
(0.031)
0.140*
0.143*
0.099
0.102
‐0.010
‐0.014
‐0.199
‐0.200*
(0.081)
(0.081)
(0.088)
(0.088)
(0.069)
(0.071)
(0.122)
(0.122)
Year Fixed Effects
Excluded
Included
Included
Excluded
Included
Included
Excluded
Included
Country Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Firm Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
3,555
3,555
16148
16148
4,818
4,818
5250
5250
Obs ervati ons
Notes: Robust standard errors in parentheses, clustered by country and year. *** indicates significance at 1% level, ** 5%, and * 10% level. GDP denotes
Gross Domestic Product of the destination country. Capital/Labor is that of the parent's affiliates in a country. Tax rate is the ratio of income taxes to net income.
32 Table 5A. Copyright Market Effects
Developed Country Sample
(1)
(2)
VARIABLES
ln (Licensing)
ln(FDI)
Sector:
Complementary Industries
Constant
‐5.772*
3.266
(2.991)
(4.877)
ln (Affiliate Sales)
ln (GDP)
ln (Copyright Market Size)
ln (Capital/Labor)
Tax Rate (Destination)
(3)
(4)
(5)
(6)
ln ln ln ln(Affiliate (Affiliate (Affiliate (Affiliate R&D)
Capital) Employed) Sales)
2.713
(11.215)
(7)
ln(FDI)
(8)
(9)
(10)
(11)
ln ln ln ln(Affiliate (Affiliate (Affiliate (Affiliate R&D)
Capital) Employed) Sales)
Professional & Scientific Industries
42.428*** 15.996***
(8.701)
(4.080)
3.001
36.101***
(10.287)
(8.836)
‐11.046
17.138
7.902
‐14.114
(11.766)
(13.036)
(6.317)
(9.417)
0.645***
0.150***
(0.029)
(0.017)
0.199*
‐0.141
‐0.302
0.231
‐1.259***
0.397
‐0.445
‐0.074
0.906***
(0.111)
(0.178)
(0.414)
‐1.363*** ‐0.441***
(0.323)
(0.151)
(0.385)
(0.323)
(0.425)
(0.466)
(0.226)
(0.341)
0.019**
0.024
0.114**
0.069**
0.069***
0.015
‐0.117***
0.021
0.114***
0.006
‐0.004
(0.008)
(0.019)
(0.044)
(0.027)
(0.018)
(0.026)
(0.039)
(0.030)
(0.039)
(0.018)
(0.024)
‐0.217*** 0.362***
‐0.132*** 0.242*** ‐0.117***
0.076
0.022
0.060**
‐0.048
0.204**
‐0.004
(0.016)
(0.028)
(0.081)
(0.068)
(0.035)
(0.088)
(0.065)
(0.049)
(0.066)
(0.044)
(0.066)
0.014
‐0.063
‐0.064
‐0.019
‐0.051
0.067
‐0.025
‐0.015
‐0.043
‐0.064
0.043
(0.018)
(0.040)
(0.084)
(0.066)
(0.039)
(0.064)
(0.088)
(0.065)
(0.065)
(0.048)
(0.074)
Year Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Country Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Firm Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
52,864
52,864
21,916
21,925
21,922
21,925
22,941
8,469
8,464
8,469
8,471
Observations
Notes: Robust standard errors in parentheses, clustered by country and year. *** p<0.01, ** p<0.05, * p<0.1. 'Copyright
Market Size' is the real value of sales in the copyright industries in a country. FDI is the stock of foreign direct investment by the parent firm. Licensing is the unaffliated receipts of royalties of licensing fees of the parent firm.
33 Table 5B. Copyright Market Effects
Developing Country Sample
(1)
(2)
ln (Licensing)
ln(FDI)
(3)
(4)
(5)
(6)
ln ln ln ln(Affiliate (Affiliate (Affiliate (Affiliate Capital) Employed) Sales)
R&D)
DEPENDENT VARIABLES
Sector:
Complementary Industries
Constant
‐9.534*** ‐27.142*** ‐35.182***
(1.679)
(5.105)
ln (Affiliate Sales)
ln (GDP)
ln (Copyright Market Size)
ln (Capital/Labor)
Tax Rate (Destination)
(6.734)
(7)
ln(FDI)
(8)
(9)
(10)
(11)
ln ln ln ln(Affiliate (Affiliate (Affiliate (Affiliate Capital) Employed) Sales)
R&D)
Professional & Scientific Industries
‐2.260
‐3.335
‐18.655* ‐44.043*** ‐27.918*** ‐31.683*** ‐33.903*** ‐33.677***
(9.105)
(5.329)
(10.533)
(7.098)
(6.492)
0.457***
0.123***
(0.029)
(0.020)
(9.726)
(6.626)
(9.417)
0.365***
1.014***
1.210***
0.295
0.296
1.030**
1.649***
1.030***
1.379***
1.435***
1.545***
(0.065)
(0.196)
(0.259)
(0.351)
(0.197)
(0.407)
(0.274)
(0.249)
(0.371)
(0.253)
(0.362)
0.002
0.028**
0.020
0.132***
0.070***
0.055**
0.048**
0.001
0.081***
0.055***
0.037**
(0.022)
(0.038)
(0.018)
(0.022)
(0.023)
(0.019)
(0.027)
(0.015)
(0.019)
‐0.025
0.183***
0.051
‐0.038
0.125**
‐0.085**
0.202***
(0.053)
(0.036)
(0.029)
(0.061)
(0.036)
(0.043)
(0.004)
(0.013)
0.012***
0.026
(0.005)
(0.027)
‐0.223*** 0.406***
(0.045)
(0.080)
(0.017)
‐0.009
‐0.053
0.064
‐0.362***
‐0.156**
(0.026)
(0.061)
(0.098)
(0.130)
(0.071)
(0.127)
(0.105)
(0.077)
(0.130)
(0.079)
(0.089)
Year Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Country Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Firm Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
21,848
21,848
8,834
8,840
8,863
8,842
7,781
2,718
2,724
2,727
2,724
Observations
‐0.357*** ‐0.463***
0.087
Notes: Robust standard errors in parentheses, clustered by country and year. *** p<0.01, ** p<0.05, * p<0.1. 'Copyright
Market Size' is the real value of sales in the copyright industries in a country. FDI is the stock of foreign direct investment by the parent firm. Licensing is the unaffliated receipts of royalties of licensing fees of the parent firm.
‐0.384*** ‐0.286*** ‐0.310***
34 Table 6. View from the Extensive Margin ‐ Episodes of Positive FDI
Dependent Variable: ENTRY = 1 if FDI > 0, zero otherwise
(1)
Sample:
Sector:
Constant
ln (GDP)
ln (Copyright Index)
Developed Countries
Copyright‐
Related Industries
(2)
Developed Countries
Copyright‐
Related Industries
(5)
(6)
Prof. & Scientific
Developing Countries
Copyright‐
Related Industries
Developing Countries
Copyright‐
Related Industries
24.305***
10.360
‐43.640**
‐42.611*
(7)
Developing Countries
Comple‐
mentary Industries
Prof. & Scientific
(11.141)
(10.590)
(5.252)
(10.411)
(21.722)
(21.892)
(4.963)
(9.297)
0.509
0.565
‐0.973***
‐0.426
1.266*
1.230*
0.755***
2.239***
(0.444)
(0.422)
(0.180)
(0.409)
(0.742)
(0.748)
(0.191)
(0.359)
‐0.697*
‐0.857**
1.792***
1.643***
(0.391)
(0.390)
(0.417)
0.040**
0.058***
Market Rank
0.455***
0.143
(0.059)
(0.117)
ln (Copyright Market Size)
0.082**
‐0.098***
‐35.047***
(8)
Developing Countries
‐15.602
(0.394)
Tax Rate (Destination)
(4)
Developed Countries
‐13.453
ln (Copyright Index) x
ln (Capital/Labor)
(3)
Developed Countries
Comple‐
mentary Industries
‐73.652***
(0.036)
(0.033)
(0.019)
(0.022)
‐0.079
‐0.045
0.029
‐0.143**
0.207*
0.214*
‐0.003
‐0.002
(0.078)
(0.081)
(0.057)
(0.066)
(0.117)
(0.122)
(0.033)
(0.015)
‐0.110
‐0.085
‐0.028
‐0.040
‐0.329**
‐0.317**
‐0.066
‐0.426***
(0.115)
(0.115)
(0.061)
(0.089)
(0.151)
(0.153)
(0.118)
(0.105)
Year Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Country Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
Firm Fixed Effects
Included
Included
Included
Included
Included
Included
Included
Included
12,257
12,257
40,158
17,260
3,655
3,655
15,000
5,064
Observations
Notes: Robust standard errors in parentheses, clustered by country and year. *** p<0.01, ** p<0.05, * p<0.1. The independent variables
are defined in previous tables.
36 See Bilir (2014), Branstetter et al. (2011), Ivus et al. (2014), and Park and Lippoldt (2005).
2
For a survey of the economics literature on copyrights, see Landes and Posner (2003) and C. Handke
(2011).
3
For example, they provide infrastructure for delivering creative services, such as broadband systems or
stages for performance, or innovate components and other accessories used to produce or consume
creative works.
4
See, for example, Lerner (2011) who studies how copyright protection affects venture capital
investments in the cloud computing businesses in the European Union.
5
See Greenhalgh and Rogers (2010) and Zeile (2014).
6
See Maskus (2012).
7
See, for example, Siwek (2006), Wall Communications (2004), and Allen Consulting (2001).
8
To clarify, affiliate sales, R&D, capital stock, and employment are obtained by summing across all of
the parent company’s affiliates in a country in each given time period.
9
As indicated in the Data Appendix, the national copyright sales data come from Thomson Datastream
Worldscope, which uses its own industrial classification numbers. I selected those that best fit the
NAICS coding system; for example, media and software.
10
I base this classification on the U.N. Statistical Yearbook. Countries like Korea and Taiwan have
developed greatly but they are still classified as developing. For a good part of the sample period, they
were emerging economies.
11
The main source of information about copyright laws and regulations is the World Intellectual Property
Organization (WIPO)’s LEX website http://www.wipo.int/wipolex/en/index.jsp?tab=3 and case law
commentaries in Geller, P. and Bently, L. (2013), International Copyright Law and Practice, Matthew
Bender.
12
The qualitative results are similar if we use the BEA’s measure of affiliate sales in each country. The
main difference is that Thomson’s Datastream Worldscope includes non-U.S. affiliated firms, such as
local indigenous companies or affiliates of non-U.S. parent firms.
13
Note that the R&D intensities of parent companies are similar for the developed country and
developing country samples but are not exactly the same. The figures would be exactly the same if the
same companies were operating in both developed and developing countries, but that is not the case.
Some parent firms have presence in a developed country but not in a developing country, and vice versa.
14
For example, R&D in the manufacturing sector considers activities intended to lead to discoveries that
result in new products or processes, or improve existing products and processes. How we can measure
the same for artists and songwriters and novelists is a measurement challenge.
15
The figures in the table that refer to capital per worker or output per worker are in thousands of real
U.S. dollars.
16
Not included in the table are industries related to Agriculture, Chemicals, Energy, Retail, Wholesale,
and Finance. Even in say, petroleum refining, are there some firms that derive sales from performance
and broadcasting. Again, they are not large amounts compared to what the copyright-related firms
experience, but they do suggest that copyright-relevant activities are more widespread than previously
thought.
17
The standard errors are robust to serial correlation and heteroskedasticity, and are clustered by country
and year to control for within-country-year correlations of the regression model errors.
18
Because of the logarithmic specification of the regression model, the coefficient estimates are
interpreted as elasticities. They show the percentage change in licensing (or FDI) per one percent change
in the copyright index.
19
A negative coefficient of GDP on R&D may reflect firms’ choices to reallocate resources for other
purposes; for example, during a cyclical boom, firms may choose production over research. A negative
effect on employment may reflect the choice to utilize other factors of production.
1
37 For all industries, the U.S. direct investment position abroad in 2013 was about $4.66 trillion (U.S.
dollars) on a historical cost basis, and for the manufacturing industries it was about $612 billion. These
figures were obtained using the Interactive Tables of the Bureau of Economic Analysis (BEA):
www.bea.gov/iTable/index_MNC.cfm (accessed December 11, 2014).
21
The total licensing of software and audio-visual and related products was about $61 billion in current
dollars and that of industrial processes was almost $45 billion. These figures were obtained using the
Interactive Tables of the Bureau of Economic Analysis (BEA): www.bea.gov/iTable/index_ita.cfm
(accessed December 11, 2014).
20