While existing literature has examined the impact of intellectual property protection on the volume of foreign direct investment (FDI), little is known about its effect on the composition of FDI inflows. Smarzynska addresses this question empirically, using a unique firmlevel data set from Eastern Europe and the former Soviet Union. She finds that weak protection deters foreign investors in technology-intensive sectors that rely heavily on intellectual property rights. The results also indicate that a weak intellectual property regime encourages investors to undertake projects focusing on distribution rather than local production. The latter effect is present in all sectors, not just those relying heavily on intellectual property protection. This paper-a product of Trade, Development Research Group-is part of a larger effort in the group to examine the effects of intellectual property protection on economic activity. Copies of the paper are available free from the World Bank, 181
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