“Impact of intellectual property rights on foreign direct investment in Africa”

The study investigated the impact of intellectual property rights on foreign direct investment (FDI) in selected African countries (Burkina Faso, Ivory Coast, Nigeria, Cameroon, Mali, Kenya, Burundi, Central African Republic, Rwanda, Senegal, Zimbabwe, and Tanzania). The purpose of the study is to develop property rights policies that encourages FDI in African countries. How FDI is influenced by the combination of trade openness and intellectual property rights was also examined using the same data set and econometric methods such as the dynamic generalized method of moments (GMM), fixed effects, and pooled ordinary least squares (OLS). Panel data ranging from 2005 to 2019 were used for the purposes of this study. A 1% increase in intellectual property rights led to a 22.73% increase in FDI inflows under the dynamic GMM and a 45.55% increase in FDI inflows under the random effects. These results show that intellectual property rights significantly enhanced FDI under the random effects and dynamic GMM. FDI was insignificantly enhanced by intellectual property rights under the pooled OLS and fixed effects methods. A 1% increase in complementarity between intellectual property rights and trade openness (complementarity term) pushed up FDI inflows by 17.78% under the dynamic GMM, whilst a 1% increase in the complementarity term increased FDI inflows by 16.72% under the fixed effects. In other words, dynamic GMM and fixed effects approaches show that the complementarity component significantly improved FDI inflows. The paper recommends implementing the best property rights strategies to improve FDI inflows into African countries.


INTRODUCTION
agreed that economic growth is achieved through FDI's ability to transfer technology, bring managerial skills, train skills, create employment, and, along with it, bring the muchneeded additional capital into the host countries.Hundreds of existing studies on the topic concur that the former is a critical element of the latter.In other words, the positive influence of FDI on the economy is now conclusive in the field of development economics and finance.What remains unresolved and is the subject of this study is the role of institutions' quality in attracting FDI.These institutions in the host country include corruption, property rights, and the rule of law, among others.host country.Intellectual property rights spur economic growth and development, which provides a conducive environment that attracts FDI into the host nation.Adams (2010) noted that the impact of property rights on FDI is quite ambiguous and requires further study.Although there are several related prior studies, they are characterized by methodological deficiencies.These include failure to consider that FDI data are affected by their prior position, inability to address the endogeneity problem, shying away from African countries, use of outdated data, and failure to capture the non-linearity aspect between these two variables, which is consistent with Arshad and Ghulam (2010).These methodologically related issues are considered in this study.

LITERATURE REVIEW
Theoretically, property rights are essential in the economic growth process of any country in various aspects.Property rights, according to Cooter and Ulen (2012), create incentives, allocate resources, and stimulate production-related activities in the economy.Their study argued that property rights determine limited resource distribution.In the same vein, they argued that property rights encourage people to save and invest their money, leading to the existence of an efficient market.According to Gwartney and Lawson (2006), strong property rights give individuals and companies a higher degree of economic freedom.This entices them to engage in long-term investments, which ultimately feed into the country's development agenda.Their study also noted that property rights ensure the availability of free resources, which would have been freed from the monopoly of government agencies.This helps to spread political and economic power in the society.When businesses feel their investments are safe and secure due to the existence of property rights, welfare increase in societies is observed (Rodrick, 2004).
There are four theoretical rationales explaining the importance of property rights in influencing the inflow of FDI into host countries.According to Javorcik (2004), strong property rights spur FDI because they reduce the risk or probability of breaching the contract by the licensee.The same author also argued that strong property rights deter the licensee from directly competing with the seller, which encourages FDI.However, Yang and Maskus (2001) argued that strong property rights may have a deleterious influence on FDI by ensuring that licensing becomes a viable alternative to FDI.
According to Hu et al. (2021), intellectual property rights ensure an improved business environment, which in itself is a strong feature of the host country and attracts FDI.On the contrary, stronger intellectual property rights increase the cost of learning for developing nations, and this may end up cutting down the chain of supply in developed nations (Hu et al., 2021, p. 1).According to Adams (2010), strong property rights promote trade and investment because foreign investors are assured of the absence of their new technology leakages and imitation.The same author argued that the easy and quick flow of new international technology happens when the host countries respect intellectual property rights.Yuldoshboy et al. (2022) argued that high-quality intellectual property rights indices show that shareholders of multinational firms feel safeguarded that debt default risk is reduced.They also guarantee these shareholders that any transfer of knowledge between nations is performed in a legal manner.This also ensures that any illegal poaching of intellectual property rights can be addressed in a satisfactory way (Borovitsky, 2020).Dunning (1973) developed the eclectic paradigm hypothesis.It says that OLI (ownership, location, and internalization) advantages influence the quality and quantity of FDI flowing into host countries.Dunning (1980) also further explained the OLI advantages of FDI.Ownership advantage is the edge a firm enjoys over its rivals even if it is a foreign company.These include patents, brand names, knowledge, intellectual property rights, and technology, which is in line with Wahid et al. (2009)."A firm that possesses the technology, monopoly, and economies of large size advantages can enjoy higher profitability margins coupled by lower marginal costs of production if it decides to operate from abroad" (Dunning, 1973).Government policies shape political benefits, transport, size of the market, and telecommunications constitute economic benefits, whilst people's  2019) noted that intellectual property rights had a significant enhancing effect on FDI in China.Using the same approach (literature review analysis), Lundquist (2011) revealed that intellectual property rights were instrumental in attracting foreign direct investment.
Ayappan and Chin (2018) used a system GMM using panel data (1998-2013) to explore the FDIproperty rights nexus in 103 group of nations?The finding was that intellectual property rights enhanced both the economy and FDI.Rozilee et al. (2012) employed the ARDL (Autoregressive Distributive Lag) using time series data  to explore the relationship between property rights and FDI in Malaysia.Their study revealed that intellectual property rights improved the economy and attracted FDI into Malaysia.

Sabir and Abbas (2019) explored the role of institutions (property rights included) in FDI in developing economies employing the generalized method of moments (GMM) with panel data (1996-2016).
The influence of institutional quality on FDI was found to be positive and significant across all groups of countries during the period under study.Using panel data, Yuldoshboy et al. (2022) explored the linkage between FDI and intellectual property rights in Kazakhstan, Uzbekistan, and Kyrgyzstan.FDI was found to have gone up by 0.004 percentage points in response to a 1 percent increase in quality of intellectual property rights across all the countries studied.
Only one study (Borovitsky, 2020) supported the argument that property rights negatively influence FDI.Borovitsky (2020, p. 1) explored the nexus between FDI and intellectual property rights in middle to low-income countries using panel data analysis.The study noted that FDI was negatively affected by intellectual property rights.
Other empirical studies have shown that certain conditions must be in place in FDI recipient countries before property rights can have a meaningful impact on FDI.In Asia, a literature review analysis by Lee and Park (2013) 2017) used threshold panel regression analysis to explore the relationship between FDI, intellectual property rights, and economic freedom in developing countries.Their study noted that intellectual property rights' impact on FDI was more pronounced in countries characterized by a higher-quality institutional environment.
The bi-directional causality relationship between FDI and property rights was confirmed by Branstetter and Saggi (2010).FDI and intellectual property rights affected each other in a literature review study by Branstetter and Saggi (2010).
Empirical studies that show that property rights' impact on FDI is minimal also exist.Hammami (2019) explored the interactions between intellectual property rights, economic growth, and FDI in low to middle-income countries using panel methods (two-stage least squares and fixed effects).FDI was insignificantly enhanced by the intellectual property rights in middle and low-income countries.The same study noted that FDI was not influenced by intellectual property rights reforms specifically in developing countries.
A literature review by Noon et al. (2018) noted that intellectual property rights' influence on FDI was positive, fragmented, inconclusive, and unable to define the foreign direct investment location deci-sions worldwide.Granath and Sluiter (2018) used panel methods to study the relationship between property rights and FDI in 20 middle-income countries.The study revealed that FDI was insignificantly enhanced by property rights across all the countries studied.
These empirical studies show that property rights influence foreign direct investment in a mixed, diverse, and divergent way.The empirical literature does not reach a consensus on the relationship between foreign direct investment and property rights.This study investigates the impact of property rights on FDI in an African context based on this.

METHOD
This paper used secondary data for all the variables ranging from 2005 to 2019.World Development Indicators is the source of secondary data used.The advantages of these sources are: (1) they have an international stature, (2) they are reputable, (3) they are reliable, and (4) they are easily verifiable.
The general model specification of the FDI function is represented below in the form of equation (1)., , , , , ,

PR OPEN UNEMPL FDI f
FIN GROWTH POP =    (1) where FDI, PR, OPEN, UNEMPL, FIN, GROWTH, and POP are the independent variables.Property rights are represented by PR, whilst OPEN represents openness to trade.Unemployment is abbreviated by UNEMPL, FIN represents financial management, whilst GROWTH is economic growth.POP is population growth.FDI (% of GDP) is the proxy of foreign investment used.Property rights are measured by property rights and rule-based governance rating (1 = low to 6 = high).
The total of exports and imports (% of GDP) was used as a measure of trade openness.The ratio of domestic credit provided by financial intermediaries to GDP is the financial sector development proxy.Population growth (annual %) was used as a proxy for population growth.GDP per capita is the economic growth proxy, while the percentage of the total labor force is the measure of unemployment.
According to Adams (2010), strong intellectual property alone cannot be enough to attract FDI.This is the reason why even the BRICS economic grouping received one of the largest shares of FDI despite the high prevalence of questionable respect for intellectual property rights among the group's individual countries.The choice of control variables of FDI to be included in this study is informed by another similar study by Rozilee et Jorgenson (1963), high unemployment levels attract FDI because foreign investors are attracted by low labor costs.Low unemployment levels mean the market size (buying power of the customers) is high thereby attracting more foreign investors (Jorgenson, 1963).
According to Bartels et al. (2009), financial markets that are developed tend to attract more FDI because of their ability to cut the cost of transactions, smoothen the flow of information and confidence building factor in the economy.According to Jorgenson's (1963) market size hypothesis, high economic growth as an indicator of market size attracts FDI.Moosa (2010) also echoed the same sentiment with regard to the economic growth-FDI nexus.The bigger size of the population enhances FDI inflows by attracting a huge skill base, enough labor force, and a market for products and services (Aziz & Makkawi, 2012).
where FDI is proxied by net foreign direct investment (% of GDP), and control variables are represented by X. 0 β is the intercept.µ is an unobserved country-specific effect and time-invariant.
Equation ( 3) addresses the question of the influence of the complementarity variable on FDI in selected African countries.
( ) ,  Kyrkilis and Koboti (2015), whose studies showed that certain characteristics must be present in the host country to allow property rights to significantly enhance FDI.Equation ( 4) was introduced to consider an argument by Krugman (1991) and Wheeler and Mody (1992) that foreign investments follow each other (the lag of FDI).In other words, FDI is positively attracted by already existing foreign investment in the host country.
Equation ( 3) was econometrically estimated employing random effects, pooled OLS, and fixed effects, whereas equation (4) was estimated using a dynamic GMM.This study performed panel co-integration tests (Table 3) using Kao (1999).The main purpose of the panel co-integration tests was to establish whether there is a long-run relationship between variables used in the study.Tembo (2018) used the same approach to test the existence of a co-integrating relationship (see Table 3).Table 4 summarizes the results.

DISCUSSION
Tables 3 and 4 present the pre-estimation diagnostics that must be performed before the main data analysis.The former is done to understand the nature of data and to establish whether the data being used are stable and not volatile.Cointegration analysis establishes the existence of long-run relationships between the variables being studied.In line with Borko (2017), the paper noted that variables were stationary at first difference.A co-integration relationship was established at a one percent significant level (Table 3), hence allowing final data analysis to be undertaken (see Table 4).
The dynamic GMM indicates FDI was enhanced by its own lag, which is in line with Krugman (1991), whose study argued that foreign direct investment is positively attracted by already existing foreign direct investment.The impact of property rights on FDI under the dynamic GMM and random effects was significantly positive, whilst property rights enhanced FDI non-significantly using pooled OLS and fixed effects.The findings agree with Dunning (1980)  Population growth increased FDI insignificantly, according to pooled OLS and random effects, while dynamic GMM and fixed effects noted that FDI was significantly increased by population growth.This finding is generally in line with Aziz and Makkawi (2012), who noted that a bigger population enhances FDI inflows by attracting a huge skill base, enough labor force, and a market for products and services.

CONCLUSION
The study investigated the effect of intellectual property rights on FDI in selected African countries using panel data (2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015)(2016)(2017)(2018)(2019).The paper also studied the impact of complementarity of trade openness and intellectual property rights on FDI in selected African countries using a similar research methodology.Intellectual property rights significantly increased FDI, according to random effects and dynamic GMM approaches.Pooled OLS and fixed effects show that intellectual property rights insignificantly increased FDI.Selected African countries are therefore urged to strengthen all forms of property rights to attract more FDI inflow and, consequently, economic growth.
Dynamic GMM and fixed effects approaches show that the complementarity variable significantly improved FDI.Selected African countries must, therefore, design and implement policies that enhance intellectual property rights and trade openness if they intend to significantly attract FDI.Other variables that need to be increased via policy design and implementation by BRICS nations to attract more FDI include financial development, population growth, and economic growth.Future research should focus on the threshold levels that intellectual property rights must reach before any meaningful and significant inflow of FDI into these selected African countries can occur.
Fang et al. ( innovation mainly in the pharmaceutical sector.A critical literature review analy-sis by Wang et al. (2016) observed that intellectual property rights enhance FDI.Hu et al. (2021) investigated the influence of property rights policies on technological innovation and FDI inflows into Northern and Southern countries.Intellectual property rights were found to be the bedrock behind increased technological innovation and FDI inflows in a literature critical review by Hu et al. (2021, p. 1).Danai (2018) used the gravity model and the metaanalysis approach with data spanning from 2001 to 2011 to establish the connection between FDI and property rights in the Organization for Economic Cooperation and Development (OECD) countries.FDI was enhanced by the strict implementation of intellectual property rights in the OECD group of countries.Employing panel data (2003-2015), Papageorgiadis et al. ( Maskus (2000)ies (2019)examined the property rights-FDI nexus in developed and developing nations.The influence of property rights on FDI was found to have been more pronounced in developing and developed countries characterized by quite strong democratic institutions.Maskus (2000)noted that intellectual property rights alone are not an incentive to attract FDI.Factors that should interact with intellectual property rights to attract significant FDI were found to be technology development, market deregulation, and strong competition in the economy.

Table 1 .
Mean trends in FDI and intellectual property rights in chosen African nations Source: Author compilation.

and Chu Im, Pesaran, and Shin ADF Fisher Chi-Square PP Fisher Chi-Square tests Level
Bartels et al. (2009)stand for significant levels of 1 percent, 5 percent, and 10 percent, respectively.Financial development significantly increased FDI under all four panel methods, supportingBartels et al. (2009), who argued that developed financial markets attract FDI because they allow easy information flow.Pooled OLS and random effects indicate that economic growth insignificantly enhanced FDI, while the dynamic GMM and fixed effects noted that economic growth significantly increased FDI.The result generally agrees with Moosa (2010), who observed that high economic growth is a proxy for a large market size, which attracts FDI.