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Licensing versus direct investment: implications for economic growth

In: Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy

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  • Amy Jocelyn Glass
  • Kamal Saggi

Abstract

We develop a symmetric two country model of foreign direct investment (FDI) that captures the internalization decision and its implications for both the rate and magnitude of innovations. When mode choice (licensing versus FDI) is fixed, a subsidy to multinational production increases the rate but decreases the size of innovations. When mode can switch, the rate and size of innovations both increase, provided the subsidy is not too large. Although innovation size decreases for industries where firms already were choosing FDI, innovation size increases for industries where firms switch from licensing to FDI because multinationals choose larger innovations than licensors.

Suggested Citation

  • Amy Jocelyn Glass & Kamal Saggi, 2023. "Licensing versus direct investment: implications for economic growth," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 10, pages 227-249, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813233027_0010
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    More about this item

    Keywords

    International Technology Transfer; Multinational Firms; Trips; Foreign Direct Investment; Oligopolistic Competition; Vertical Contracts; Intellectual Property Rights;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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