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Intellectual Property Rights and Entry into a Foreign Market: FDI vs Joint Ventures

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Author Info
Leahy, Dermot
Naghavi, Alireza

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Abstract

This paper investigates how the mode of entry into a foreign market can be influenced by the intensity of R&D in an industry and the protection of intellectual property rights (IPR) in a recipient country. It then analyzes the link between the IPR regime and policies that place limits on the degree of foreign ownership in a joint venture (JV). In particular, we study the effect of the IPR regime of the host country (South) on a multinational’s decision between serving a market via greenfield foreign direct investment to avoid the exposure of its technology or entering a JV with a local firm, which allows R&D spillovers to a third firm under imperfect IPRs. JV is the equilibrium market structure when extra rents can be gained from a JV. This occurs when R&D intensity is moderate and IPRs strong. The South can gain from increased IPR protection by encouraging a JV, whereas policies to limit foreign ownership in a JV gain importance in technology intensive industries as complementary policies to strong IPRs. The South never finds it optimal to fully protect IPRs and concede all bargaining power in a JV to the Northern firm.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5672.

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Date of creation: May 2006
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Handle: RePEc:cpr:ceprdp:5672

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Related research
Keywords: bargaining; development; FDI policy; intellectual property rights; joint ventures; R&D spillovers; technology transfer;

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December. [Downloadable!] (restricted)
  2. Javorcik, Beata Smarzynska & Saggi, Kamal, 2004. "Technological asymmetry among foreign investors and mode of entry," Policy Research Working Paper Series 3196, The World Bank. [Downloadable!]
  3. Saggi, Kamal, 1996. "Entry into a Foreign Market: Foreign Direct Investment versus Licensing," Review of International Economics, Blackwell Publishing, vol. 4(1), pages 99-104, February.
  4. Alireza Naghavi, 2005. "Strategic Intellectual Property Rights Policy and North-South Technology Transfer," Working Papers 2005.18, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  5. J Peter Neary, 2002. "The Road Less Travelled - Oligopoly and Competition Policy in General Equilibrium," Working Papers 200222, School Of Economics, University College Dublin. [Downloadable!]
  6. Zigic, Kresimir, 1998. "Intellectual property rights violations and spillovers in North-South trade," European Economic Review, Elsevier, vol. 42(9), pages 1779-1799, November. [Downloadable!] (restricted)
  7. Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001. "Mode of Foreign Entry, Technology Transfer, and FDI Policy," CEPR Discussion Papers 2870, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Al-Saadon, Yousef & Das, Satya P., 1996. "Host-country policy, transfer pricing and ownership distribution in international joint ventures: A theoretical analysis," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 345-364, May. [Downloadable!] (restricted)
  9. Saggi, Kamal, 1999. "Foreign Direct Investment, Licensing, and Incentives for Innovation," Review of International Economics, Blackwell Publishing, vol. 7(4), pages 699-714, November.
  10. Vishwasrao, Sharmila, 1994. "Intellectual property rights and the mode of technology transfer," Journal of Development Economics, Elsevier, vol. 44(2), pages 381-402, August. [Downloadable!] (restricted)
  11. Chin, J.C. & Grossman, G.M., 1988. "Intellectual Property Rigths And North-South Trade," Papers 143, Princeton, Woodrow Wilson School - Public and International Affairs.
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  12. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-20, December. [Downloadable!] (restricted)
  13. J Peter Neary; & Paul O'Sullivan, 1997. "Beat 'em or Join 'em?: Export Subsidies Versus International Research Joint Ventures in Oligopolistic Markets," Economics, Finance and Accounting Department Working Paper Series n700897, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    Other versions:
  14. Das, Satya P, 1999. "Direct Foreign Investment versus Licensing," Review of Development Economics, Blackwell Publishing, vol. 3(1), pages 86-97, February. [Downloadable!] (restricted)
  15. Ping Lin & Kamal Saggi, 2004. "Ownership Structure and Technological Upgrading in International Joint Ventures," Review of Development Economics, Blackwell Publishing, vol. 8(2), pages 279-294, 05. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alireza Naghavi, 2007. "Strategic Intellectual Property Rights Policy and North-South Technology Transfer," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(1), pages 55-78, April. [Downloadable!] (restricted)
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