# **Table III**

## **Intrafirm Royalty Payments and IPR Regime Changes**

The dependent variable in the first three columns is the log of one plus the value of royalty payments made by affiliates to their parents, and the dependent variable in columns 4-6 is the log of one plus the ratio of intrafirm royalty payments to affiliate sales. The Post Reform Dummy is a dummy equal to one in the year of reform and in the years following the reforms identified in Table II. The High Patent Use Dummy is a dummy that is equal to one for affiliates of parents that over the four years prior to a reform average at least as many patent applications as the parents of the median affiliate in the reforming country. The Difference of Host Country Tax Rate and US Tax Rate is the difference between the corporate income tax rate in the host country and the US corporate income tax rate. The Host Country Tax Rate and the Host Country Withholding Tax Rate are annual median tax rates paid by affiliates in a host country. Host Country Inward FDI Restrictions is a dummy equal to one when inward FDI restrictions exist, and it is drawn from Brune (2001). Host Country Trade Openness is the index of constant price openness taken from Heston, Summers, and Aten (2002).

The Log of Host Country GDP per capita is derived from data provided in the World Bank World Development Indicators (2003). Log of Affiliate Sales is the log of the value of affiliate sales, and Log of Parent R&D Expenditures is the log of the affiliate's parent R&D expenditures. The Log of Parent System Sales is the log of total sales of the parent and its affiliates. All specifications include affiliate and year fixed effects as well as country specific time trends. Heteroskedasticity-consistent standard errors appear in parentheses.

|Dependent Variable:|Log of Intra|firm Royalty|Payments|Log of<br>Payme|Intrafirm Roy<br>nts/Affiliate S|alty<br>ales|
|---|---|---|---|---|---|---|
||(1)|(2)|(3)|(4)|(5)|(6)|
|Constant|22.5149|22.1481|62.5752|0.1086|0.1072|0.1660|
||(21.2651)|(30.2057)|(31.7866)|(0.1140)|(0.1559)|(0.1619)|
|Post Reform Dummy|0.0980|0.0199|0.0247|0.0008|0.0005|0.0006|
||(0.0412)|(0.0647)|(0.0664)|(0.0002)|(0.0003)|(0.0003)|
|Post Reform Dummy * High Patent Use||0.2657|0.2130||0.0012|0.0011|
|Dummy||(0.0715)|(0.0732)||(0.0004)|(0.0004)|
|Difference of Host Country Tax Rate and|-0.0519|-0.2144|-0.2924|-0.0005|-0.0035|-0.0038|
|US Tax Rate|(0.2458)|(0.3675)|(0.3782)|(0.0013)|(0.0018)|(0.0019)|
|Host Country Withholding Tax Rate|0.2077|0.1078|0.0699|-0.0015|-0.0060|-0.0062|
||(0.3359)|(0.4950)|(0.5198)|(0.0018)|(0.0023)|(0.0024)|
|Host Country Inward FDI Restrictions|-0.1427|-0.1108|-0.1038|-0.0003|-0.0001|-0.0001|
||(0.0672)|(0.1103)|(0.1103)|(0.0004)|(0.0006)|(0.0006)|
|Host Country Trade Openness|0.0063|0.0050|0.0038|0.0000|0.0000|0.0000|
||(0.0022)|(0.0031)|(0.0032)|(0.0000)|(0.0000)|(0.0000)|
|Log of Host Country GDP per Capita|1.1022|1.1045|1.0772|0.0028|0.0032|0.0035|
||(0.1919)|(0.2758)|(0.2854)|(0.0010)|(0.0013)|(0.0014)|
|Log of Affiliate Sales|||0.0993||||
||||(0.0130)||||
|Log of Parent R&D Expenditures|||0.0138|||0.0001|
||||(0.0103)|||(0.0000)|
|Log of Parent System Sales|||0.3244|||0.0000|
||||(0.0678)|||(0.0003)|
|Affiliate and Year Fixed Effects?|Y|Y|Y|Y|Y|Y|
|Country Specific Time Trends?|Y|Y|Y|Y|Y|Y|
|No. of Obs.|44,375|16,998|16,418|42,387|16,553|16,038|
|R-Squared|0.7468|0.7261|0.7289|0.6739|0.6735|0.6764|

46