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International Know-how Trade and Foreign Direct Investment / Direktinvestitionen und Handel mit Know-how

Author

Listed:
  • Klein Martin

    (Dipl.-Volkswirt Uwe Eiteljörge, Martin-Luther-Universität Halle- Wittenberg, Wirtschaftswissenschaftliche Fakultät, D-06099 Halle)

Abstract

The improved international tradability of services and the better protection of intellectual property rights - both of which have been results of the Uruguay Round - increase the international tradability of know-how. This paper investigates the economic impact of this. It is shown that know-how may be under-traded or over-traded. In the first case know-how is not traded although it would be welfare improving, in the second case know-how trade takes place but welfare is reduced. The results depend on the distinction of a productivity effect and a market power effect of international know-how trade. The welfare-increasing productivity effect arises because trade in know-how raises the buyer's productivity without lowering the seller's. The market power effect arises because trade in know-how redistributes market power between the buyer and the seller and eliminates the seller's competitive edge. Although a more balanced distribution of market power is positive for welfare, there may be situations where an incumbent acquires foreign know-how mainly in order to keep a potential entrant out of its domestic market. These are situations where know-how is over-traded from the point of view of domestic welfare.

Suggested Citation

  • Klein Martin, 1998. "International Know-how Trade and Foreign Direct Investment / Direktinvestitionen und Handel mit Know-how," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 217(4), pages 418-435, August.
  • Handle: RePEc:jns:jbstat:v:217:y:1998:i:4:p:418-435
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