Intellectual property rights (IPR) have recently moved to the forefront of debates over international policy. As each country establishes its own institutions of IPR, a divergence exists between net producers and net consumers in the returns to providing strong protection. Under pressure from the developed world, many developing countries have begun to strengthen their IPR, particularly as regards patents. These changes in policy provide us with an opportunity to learn more about the effects of intellectual property institutions in developing countries. Whether and to what extent do stronger IPR spur inventive activity in a developing country? What are the factors or characteristics of industries in which strengthening patent rights has the most favorable impact on inventive activity? Will the strengthening of IPR in developing countries induce more foreign direct investment and technology transfer from abroad? In an attempt to answer these questions, this paper uses the 1986 Taiwanese patent reforms to examine the impact of strengthening patent rights in a developing economy. The evidence on the number of patents awarded to Taiwanese inventors as well as that on R&D spending in Taiwan suggests that the reforms stimulated additional inventive activity, especially in industries where patent protection is generally regarded as an effective strategy for extracting returns, and in industries which are more R&D intensive. The reforms also seemed to induce additional foreign direct investment in Taiwan. On the other hand, for industries that chiefly use other mechanisms to extract returns from their innovations, such as secrecy, the strengthening of patent rights had little effect on their inventive activity. Neither investment in R&D nor the number of patents awarded in these industries appeared to be much affected by the strengthening of patent protection.