Intellectual Property Rights, Pharmaceuticals and Foreign Direct Investment

In response to the challenges and opportunities of globalisation, the pharmaceutical sector has evolved to become one of the most dynamic and rapidly internationalising sectors in the world. One key dimension of globalisation for the sector has been the development of enhanced rules under the multilateral trading system, enabling pharmaceutical firms to better capitalise on their intellectual property. These rules have expanded the range of economic opportunities for firms in the sector, opening markets and providing improved protection for intellectual property. Many firms appear to have reacted positively to the changes in the economic environment by adjusting their investment strategies to take advantage of the integrating global economy.

Given the critical role that technological innovation plays in the sector, and the role that intellectual property rights (IPRs) play in the ability of the pharmaceutical sector to capitalise on that innovation, it is not surprising to find a positive relationship between IPRs and foreign direct investment in the sector. The strength of IPR protection appears to be one important factor – among others – influencing pharmaceutical sector trade and investment decisions. As IPR standards in some developing countries begin to approximate those in OECD countries, one could reasonably anticipate further geographic diversification in pharmaceutical sector investment, including with respect to research and development.