Abstract: The relationship between intellectual property rights (IPR) protection and foreign direct investment (FDI) continues to pose a challenging puzzle. While several studies have found that these two variables are positively correlated, others have not been able to find conclusive results. We contend that a partial explanation resides on institutional differences among host countries. We find that increases in IPR protection encourage FDI in countries in which the institutional environment, as proxied by indices of economic freedom, is efficient but not otherwise. We use threshold regression techniques on samples ranging from 81 to 102 countries during the 1990 - 2010 period.