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Institutions and Multinational Ownership Strategy

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  • Ari Van Assche

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  • Galina A. Schwartz
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    Abstract

    This paper examines the impact of institutions on a multinational firm’s ownership strategy. We develop an international joint venture (IJV) model in which a multinational firm and its local partner both can undertake costly ex post actions to increase their revenue share specified by the ex ante IJV contract. The model captures the effects of two institutional features on the optimal IJV ownership structure: contract enforceability and cronyism. We introduce the IJV model into an industry equilibrium framework to analyze the impact of institutions on a multinational firm’s choice between forming an IJV or setting up a wholly-owned subsidiary. Ce papier examine l'impact des institutions sur la stratégie de propriété d’une entreprise multinationale. Nous développons un modèle de coentreprise internationale dans lequel une entreprise étrangère et son partenaire local peuvent ex post entreprendre des actions coûteuses pour augmenter leur part de revenus indiquée dans le contrat de coentreprise. Le modèle analyse les impacts de deux caractéristiques institutionnelles sur la structure de propriété optimale : le renforcement du contrat et le copinage. Nous introduisons le modèle de coentreprise dans un modèle d'équilibre général pour analyser l'impact des institutions sur le mode d’entrée des entreprises multinationales.

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    Bibliographic Info

    Paper provided by CIRANO in its series CIRANO Working Papers with number 2008s-07.

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    Date of creation: 01 Mar 2008
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    Handle: RePEc:cir:cirwor:2008s-07

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    Keywords: liability of foreignness; international joint venture; contract enforceability; cronyism; coentreprise internationale; renforcement du contrat; copinage;

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    References

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    1. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium," NBER Working Papers 9300, National Bureau of Economic Research, Inc.
    2. repec:hrv:faseco:4784029 is not listed on IDEAS
    3. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    4. Pol Antras, 2004. "Incomplete Contracts and the Product Cycle," Econometric Society 2004 North American Summer Meetings 62, Econometric Society.
    5. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
    6. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
    7. Mihir A. Desai & Alberto Moel, 2008. "Czech Mate: Expropriation and Investor Protection in a Converging World," Review of Finance, European Finance Association, vol. 12(1), pages 221-251.
    8. Jean-François Hennart, 1991. "The Transaction Costs Theory of Joint Ventures: An Empirical Study of Japanese Subsidiaries in the United States," Management Science, INFORMS, vol. 37(4), pages 483-497, April.
    9. Chong-En Bai & Zhigang Tao & Changqi Wu, 2003. "Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures.," William Davidson Institute Working Papers Series 2003-563, William Davidson Institute at the University of Michigan.
    10. Henisz, Witold J, 2000. "The Institutional Environment for Multinational Investment," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 334-64, October.
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