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Export, Assembly-line FDI or FDI with the Possibility of Technology Diffusion: Optimal Entry Mode for Multinationals

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Author Info

  • Tanmoyee Banerjee(Chatterjee)

    (Jadavpur University)

  • Nilanjana Mitra

    (Susil Kar College)

Abstract

The paper tries to evaluate the optimal entry mode of a Multinational Company that is choosing among export, fragmented production structure with assembly-line FDI in LDC or complete production in LDC with FDI. The results show that if the plant installation cost is sufficiently high then the firm will find it profitable to export the finished product to the LDC market and the Government will not exercise any IPR restriction. If plant installation cost is below a certain critical level the MNC chooses complete LDC production with FDI over assembly-line FDI if the IPR restriction is strong, where the model assumes that a fake producer can copy the product if complete production takes place in LDC. In such a situation government will choose to protect IPR if government earning exceeds the cost of IPR protection, otherwise no monitoring is the optimal strategy of the government and MNC will choose the strategy of fragmented production structure and assembly-line FDI will take place in LDC.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.56.

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Date of creation: Jul 2008
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Handle: RePEc:fem:femwpa:2008.56

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Keywords: Export; Assembly-line FDI; FDI with Complete Production; IPR Protection;

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  1. Elhanan Helpman, 1992. "Innovation, Imitation, and Intellectual Property Rights," NBER Working Papers 4081, National Bureau of Economic Research, Inc.
  2. Zigic, Kresimir, 1998. "Intellectual property rights violations and spillovers in North-South trade," European Economic Review, Elsevier, vol. 42(9), pages 1779-1799, November.
  3. Eicher, Theo & Kang, Jong Woo, 2005. "Trade, foreign direct investment or acquisition: Optimal entry modes for multinationals," Journal of Development Economics, Elsevier, vol. 77(1), pages 207-228, June.
  4. Lai, Edwin L. -C., 1998. "International intellectual property rights protection and the rate of product innovation," Journal of Development Economics, Elsevier, vol. 55(1), pages 133-153, February.
  5. 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.
  6. Alireza Naghavi, 2005. "Strategic Intellectual Property Rights Policy and North-South Technology Transfer," Working Papers 2005.18, Fondazione Eni Enrico Mattei.
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