Intellectual Property Rights, Foreign Direct Investment and Industrial Development *

This article develops a North–South product cycle model in which innovation, imitation and the flow of foreign direct investment (FDI) are all endogenously determined. In the model, a strengthening of intellectual property right (IPR) protection in the South reduces the rate of imitation and it increases the flow of FDI. Indeed, the increase in FDI more than offsets the decline in the extent of production undertaken by Southern imitators so that the South's share of the global basket of goods increases. Furthermore, while multinationals charge higher prices than Southern imitators, real wages of Southern workers increase while those of Northern workers fall.