Contracts, intellectual property rights, and multinational investment in developing countries

The policy debate between multinational firms favoring strong contract law, and host-country governments who often oppose such protection motivates th e paper. Local agents (managers) learn the multinational's technology and c an defect to start a rival firm. Contract enforcement, including binding th e multinational itself, makes the multinational better off. Outcomes for th e host country are more complex, depending on mode switches induced by enfo rcement. If enforcement induces the multinational to switch from exporting to local production, welfare improves. If local production was occurring an yway, enforcement may result in the loss of rents to local agents and lower welfare. (C) 2001 Elsevier Science B.V. All rights reserved.