Does the adoption of stronger intellectual property rights in developing countries enhance or retard their industrial development? How does such a policy shift affect industrial activity in the developed countries, where most innovative activity is concentrated? We address these questions both theoretically and empirically. On the theoretical side, we develop a North-South product cycle in which Northern innovation, Southern imitation and FDI are all endogenous. This model predicts that IPR reform in the south leads to increased FDI from the north, as Northern firms shift production to Southern affiliates. This increased FDI drives an acceleration of Southern affiliates. This increased FDI drives an acceleration of Southern industrial development, as the South's share of global manufacturing and the pace at which production of more recently invented goods shifts to the South both increase. The model also predicts that as production shifts to the South, Northern resources will be reallocated to R&D, driving an increase in the global rate of innovation. We confront the theoretical model with evidence on the response of U.S. multinationals to a series of well-documented IPR reforms by developing countries in the 1980s and 1990s. Our results indicate that U.S.-based MNCs expand the scale of their activities in reforming countries after IPR reform, and this effect is disproportionately strong for affiliates whose parents rely strongly on patented intellectual property as part of their global business strategy. Data tracking industry level value-added in the reforming countries point to an overall expansion of industrial activity after IPR reform. Finally evidence from highly disaggregated trade data also suggests that the expansion of multinational activity leads to a higher net level of production shifting to developing countries, more than offsetting any possible decline in the imitative activity of indigenous firms.