M-RCBG Associate Working Paper No. 141
US Patents and Global Performance: Analyzing the Impact of Local Patent Protection on Firms' International Operations
Honorable Mention, 2020 Dunlop Thesis Prize
This paper examines how US patent protection affects the global scale and supra-national distribution of firms' operations. After presenting a simple theoretical model, I exploit exogenous variation in patent examiner leniency to estimate the impact of US patent protection on firms' aggregate sales in both the US and various foreign countries. In addition, to consider how US patents affect firms' production location decisions, I estimate the impact of firm-level US patent protection on US and foreign sales. Lastly, I evaluate how institutional factors contribute to across-country heterogeneity in the relationship between US patents and foreign subsidiary sales. I find that US patent protection increases firms' US sales at the aggregate and subsidiary levels. Furthermore, US patent protection increases firms' aggregate subsidiaries' sales depends upon country-specific levels of intellectual property rights (IPR) protection, property rights, judicial independence, and political transparency. Altogether, these findings suggest that US patent protection not only grants substantial domestic market power to innovative firms, but also may incentivize them to expand their foreign operations.