The influence of patent protection on firm innovation investment in manufacturing industries Brent B. Allred a, ⁎ , Walter G. Park b,1 a Mason School of Business, The College of William & Mary, Williamsburg, VA 23187-8795, United States b Department of Economics, American University, Washington, DC 20016, United States Received 24 November 2006; received in revised form 15 February 2007; accepted 21 February 2007 Available online 25 April 2007 Abstract Countries enact various mechanisms, such as patent protection, to encourage, protect, and reward firm innovation. The degree to which these mechanisms afford firms protection over their intellectual property influences the innovation strategy that firms pursue and innovation investments they make. To date, empirical evidence on the relationship between patent protections and firm innovation is lacking, despite the relationship being the subject of intense theoretical and policy debate. To further consider the influences on firm innovation, we test the influence of a country's patent rights and changes in them on firm-level investment in innovation. Data for 706 firms competing in ten manufacturing industries across 29 countries were gathered and analyzed. Even after controlling for various firm, industry, and national factors, there is a strong positive influence of patent rights and changes in patent rights on a firm's propensity to invest in innovation. In addition, we consider the sensitivity of this result to alternative measures of patent and other intellectual property protection. We also find that the influence of patent rights on firm-level innovation varies across industries for example, the impact appears greatest in the scientific instruments and industrial chemicals industries. © 2007 Elsevier Inc. All rights reserved. Keywords: Patent protection; Firm innovation investment; Industry dynamism; Munificence; Concentration 1. Introduction How do countries go about encouraging and supporting innovation? With the increase of globalization, this is becoming a critical question asked by many policymakers as they attempt to Journal of International Management 13 (2007) 91 – 109 ⁎ Corresponding author. Tel.: +1 757 221 3266: fax: +1 757 221 2937. E-mail addresses: allred@mason.wm.edu (B.B. Allred), wgp@american.edu (W.G. Park). 1 Tel.: +1 202 885 3374; fax: +1 202 885 3790. 1075-4253/$ - see front matter © 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.intman.2007.02.001