and therefore the current endowment of technology is important for future growth Empirically, a link has been established between equipment investment, which incorporates technology, and economic growth, especially for developing countries(De Long and Summers, 1991, 1993). Investment in intangibles also appears to foster growth. Nickell and Nicolitsas (1996)find a link between increased R&D expenditure and subsequent increase in fixed capital investment. The relatively higher degree of investment in fixed assets by firms in developing countries could thus mean that growth is below optimal levels The lower degree of investment in intangible assets in developing countries may relate to the weaker protection of property rights in these countries. Mansfield(1995) already hints that there may be a relationship between protection of property rights and he allocation of investable resources between fixed and intangible assets. Using a survey of firm managers he states that "Most of the firms we contacted seemed to regard intellectual property rights protection to be an important factor.."[influencing] investment decisions". More generally, the institutional economics literature(North, 1990, and De Soto, 2000)can be interpreted to suggest that investment in different type of assets will tend to be higher the more protected is the property right of the particular asset Framework and Empirical Methodology This section develops the link between on one hand the protection of property rights and he other hand the amount of investable resources and its allocation between fixed and intangible assets. Using a simple framework, we show that it may be efficient for a firm in a country with weaker property rights to choose more investment in fixed assets elative to intangible assets compared to a firm functioning environment with strong property rights. The law and finance literature already established that firm with stronger property rights would find it easier to attract external financing and more generally have the benefit of more developed financial markets. A firm's asset size and tructure will thus be affected by the strength of property rights in the country in two ways: an availability of external finance and an asset substitution effect5 and therefore the current endowment of technology is important for future growth. Empirically, a link has been established between equipment investment, which incorporates technology, and economic growth, especially for developing countries (De Long and Summers, 1991, 1993). Investment in intangibles also appears to foster growth. Nickell and Nicolitsas (1996) find a link between increased R&D expenditure and subsequent increase in fixed capital investment. The relatively higher degree of investment in fixed assets by firms in developing countries could thus mean that growth is below optimal levels. The lower degree of investment in intangible assets in developing countries may relate to the weaker protection of property rights in these countries. Mansfield (1995) already hints that there may be a relationship between protection of property rights and the allocation of investable resources between fixed and intangible assets. Using a survey of firm managers, he states that “Most of the firms we contacted seemed to regard intellectual property rights protection to be an important factor” … “[influencing] investment decisions”. More generally, the institutional economics literature (North, 1990, and De Soto, 2000) can be interpreted to suggest that investment in different type of assets will tend to be higher the more protected is the property right of the particular asset. 3. Framework and Empirical Methodology This section develops the link between on one hand the protection of property rights and the other hand the amount of investable resources and its allocation between fixed and intangible assets. Using a simple framework, we show that it may be efficient for a firm in a country with weaker property rights to choose more investment in fixed assets relative to intangible assets compared to a firm functioning in an environment with strong property rights. The law and finance literature already established that firms in a country with stronger property rights would find it easier to attract external financing and more generally have the benefit of more developed financial markets. A firm’s asset size and structure will thus be affected by the strength of property rights in the country in two ways: an availability of external finance and an asset substitution effect