IDEAS home Printed from https://ideas.repec.org/a/taf/raaexx/v23y2016i3p291-305.html
   My bibliography  Save this article

Intellectual property rights, international licensing and foreign direct investment

Author

Listed:
  • Kuang-Cheng Andy Wang
  • Yi-Jie Wang
  • Wen-Jung Liang

Abstract

This paper develops a North-South trade model to examine the effect of the enforcement of intellectual property rights (IPR) in the South on inward foreign direct investment (FDI) by taking into account international licensing and the informational advantage of FDI. The focus of this paper is on the strategic influence of international licensing on the optimal entry mode of firm N. The main findings of this paper are as follows. First, the optimal entry mode for firm N in the absence of IPR protection is FDI when the innovation size is large but the variance of demand and the fixed setup cost are small, while selecting exporting otherwise. Second, the enforcement of IPR in the South can promote FDI when the innovation size is small, while discouraging FDI when the innovation size is moderate and large. Third, the enforcement of IPR protection will most likely decrease the total output and the welfare level in the South under international licensing, while the reverse may occur as a result of changing the firm N’s entry mode from FDI to exporting.

Suggested Citation

  • Kuang-Cheng Andy Wang & Yi-Jie Wang & Wen-Jung Liang, 2016. "Intellectual property rights, international licensing and foreign direct investment," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 23(3), pages 291-305, July.
    • Handle: RePEc:taf:raaexx:v:23:y:2016:i:3:p:291-305
    DOI: 10.1080/16081625.2016.1188450
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/16081625.2016.1188450
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/16081625.2016.1188450?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February.
    2. Nagaoka, Sadao, 2005. "Determinants of high-royalty contracts and the impact of stronger protection of intellectual property rights in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 233-254, June.
    3. Smarzynska Javorcik, Beata, 2004. "The composition of foreign direct investment and protection of intellectual property rights: Evidence from transition economies," European Economic Review, Elsevier, vol. 48(1), pages 39-62, February.
    4. Branstetter, Lee & Fisman, Ray & Foley, C. Fritz & Saggi, Kamal, 2011. "Does intellectual property rights reform spur industrial development?," Journal of International Economics, Elsevier, vol. 83(1), pages 27-36, January.
    5. Vishwasrao, Sharmila, 1994. "Intellectual property rights and the mode of technology transfer," Journal of Development Economics, Elsevier, vol. 44(2), pages 381-402, August.
    6. Sougata Poddar & Uday Bhanu Sinha, 2010. "Patent Licensing from a High‐Cost Firm to a Low‐Cost Firm," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 384-395, September.
    7. Hans-Theo Normann, 1997. "Endogenous Stackelberg equilibria with incomplete information," Journal of Economics, Springer, vol. 66(2), pages 177-187, June.
    8. Wang, Kuang-Cheng Andy & Liang, Wen-Jung & Chou, Pin-Shu, 2013. "Patent licensing under cost asymmetry among firms," Economic Modelling, Elsevier, vol. 31(C), pages 297-307.
    9. Mathew, Anuj Joshua & Mukherjee, Arijit, 2014. "Intellectual property rights, southern innovation and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 128-137.
    10. Sadanand, Asha & Sadanand, Venkatraman, 1996. "Firm Scale and the Endogenous Timing of Entry: a Choice between Commitment and Flexibility," Journal of Economic Theory, Elsevier, vol. 70(2), pages 516-530, August.
    11. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    12. Mukherjee, Arijit & Mukherjee, Soma, 2013. "Technology licensing and innovation," Economics Letters, Elsevier, vol. 120(3), pages 499-502.
    13. Glass, Amy Jocelyn & Saggi, Kamal, 2002. "Intellectual property rights and foreign direct investment," Journal of International Economics, Elsevier, vol. 56(2), pages 387-410, March.
    14. Spencer, Barbara J. & Brander, James A., 1992. "Pre-commitment and flexibility : Applications to oligopoly theory," European Economic Review, Elsevier, vol. 36(8), pages 1601-1626, December.
    15. Keith E. Maskus & Mohamed Lahouel, 2000. "Competition Policy and Intellectual Property Rights in Developing Countries," The World Economy, Wiley Blackwell, vol. 23(4), pages 595-611, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xu, Lili & Lee, Sang-Ho, 2020. "Strategic Relations between Corporate Social Responsibility and Partial Privatization Policy with Foreign Penetration," MPRA Paper 100770, University Library of Munich, Germany.
    2. Sumanjeet Singh, 2018. "The State of IP protection, Exploitation and Valuation: Evidence from Select Indian Micro, Small and Medium Enterprises (MSMEs)," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 4(2), pages 159-176, July.
    3. Chang Ray-Yun & Hwang Hong & Peng Cheng-Hau, 2017. "Competition, Product Innovation and Licensing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(1), pages 1-14, February.
    4. Dan Sasaki, 2016. "Infinite horizon oligopoly with asynchronous moves: Cournot-Bertrand reversal," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 23(3), pages 327-341, July.
    5. Xu, Lili & Lee, Sang-Ho & Matsumura, Toshihiro, 2017. "Ex-ante versus ex-post privatization policies with foreign penetration in free-entry mixed markets," International Review of Economics & Finance, Elsevier, vol. 50(C), pages 1-7.
    6. Lili Xu & Fanrui Su & Sang-Ho Lee, 2023. "Strategic corporate social responsibility and partial privatization policy with foreign penetration," The Japanese Economic Review, Springer, vol. 74(2), pages 251-278, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. van Damme, Eric & Hurkens, Sjaak, 1999. "Endogenous Stackelberg Leadership," Games and Economic Behavior, Elsevier, vol. 28(1), pages 105-129, July.
    2. Guth, Werner & Ritzberger, Klaus & van Damme, Eric, 2004. "On the Nash bargaining solution with noise," European Economic Review, Elsevier, vol. 48(3), pages 697-713, June.
    3. Lin, Jenny X. & Lincoln, William F., 2017. "Pirate's treasure," Journal of International Economics, Elsevier, vol. 109(C), pages 235-245.
    4. Alireza Naghavi & Yingyi Tsai, 2015. "Cross-Border Intellectual Property Rights: Contract Enforcement and Absorptive Capacity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(2), pages 211-226, May.
    5. Arijit Mukherjee, 2014. "Patent protection under endogenous product differentiation," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 21(1), pages 78-93, March.
    6. Nagano, Mamoru, 2013. "Similarities and differences among cross-border M&A and greenfield FDI determinants: Evidence from Asia and Oceania," Emerging Markets Review, Elsevier, vol. 16(C), pages 100-118.
    7. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.
    8. Jenny X. Lin & William Lincoln, 2017. "Pirate’s Treasure," Working Papers 17-51, Center for Economic Studies, U.S. Census Bureau.
    9. Normann, Hans-Theo, 2002. "Endogenous Timing with Incomplete Information and with Observable Delay," Games and Economic Behavior, Elsevier, vol. 39(2), pages 282-291, May.
    10. Zheng, Zhijie & Huang, Chien-Yu & Yang, Yibai, 2020. "Patent protection, innovation, and technology transfer in a Schumpeterian economy," European Economic Review, Elsevier, vol. 129(C).
    11. Pamela J. Smith & Sebastian J. Anti, 2022. "How does TRIPs compliance affect the economic growth of developing countries? Application of the Synthetic Control method," The World Economy, Wiley Blackwell, vol. 45(12), pages 3873-3906, December.
    12. Gelves, Juan Alejandro & Heywood, John S., 2016. "How does a mixed ownership firm license a patent?," Economic Modelling, Elsevier, vol. 59(C), pages 278-284.
    13. Li, Fengchun & Liang, Ting & Zhou, Xiang, 2021. "How does intellectual property protection in the host country affect outward foreign direct investment?," Research in International Business and Finance, Elsevier, vol. 58(C).
    14. Zhang, Huaige & Wang, Xuejun & Qing, Ping & Hong, Xianpei, 2016. "Optimal licensing of uncertain patents in a differentiated Stackelberg duopolistic competition market," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 215-229.
    15. Midori Hirokawa & Dan Sasaki, 2001. "Endogenously Asynchronous Entries into an Uncertain Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 435-461, September.
    16. Olena Ivus & Walter Park & Kamal Saggi, 2016. "Intellectual Property Protection And The Industrial Composition Of Multinational Activity," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1068-1085, April.
    17. Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2018. "Optimal licensing under incomplete information: the case of the inside patent holder," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 979-1005, December.
    18. Eric Rasmusen & Young-Ro Yoon, 2008. "First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets," Working Papers 2008-15, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    19. Sinha, Uday Bhanu, 2016. "Optimal value of a patent in an asymmetric Cournot duopoly market," Economic Modelling, Elsevier, vol. 57(C), pages 93-105.
    20. Kuang-Cheng Andy Wang & Dang-Long Bui & Yi-Jie Wang & Wen-Jung Liang, 2023. "International licensing under an endogenous tariff in vertically-related markets," Journal of Economics, Springer, vol. 139(2), pages 93-123, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:raaexx:v:23:y:2016:i:3:p:291-305. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/raae20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.