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

  • Leahy, Dermot
  • Naghavi, Alireza

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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  1. Leahy, Dermot & Neary, J Peter, 2004. "Symmetrical Research Joint Ventures: Cooperative Substitutes and Complements," CEPR Discussion Papers 4497, C.E.P.R. Discussion Papers.
  2. Neary, J.P. & O'Sullivan, P., 1998. "Beat'Em Or Join'Em? Export Subsidies Versus International Research Joint Ventures in Oligopolistic Markets," Papers 98/10, College Dublin, Department of Political Economy-.
  3. Alireza Naghavi, 2005. "Strategic Intellectual Property Rights Policy and North-South Technology Transfer," Working Papers 2005.18, Fondazione Eni Enrico Mattei.
  4. Javorcik, Beata Smarzynska & Saggi, Kamal, 2004. "Technological asymmetry among foreign investors and mode of entry," Policy Research Working Paper Series 3196, The World Bank.
  5. 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.
  6. 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.
  7. Zigic, Kresimir, 1998. "Intellectual property rights violations and spillovers in North-South trade," European Economic Review, Elsevier, vol. 42(9), pages 1779-1799, November.
  8. Chin, J.C. & Grossman, G.M., 1988. "Intellectual Property Rigths And North-South Trade," Papers 143, Princeton, Woodrow Wilson School - Public and International Affairs.
  9. Vishwasrao, Sharmila, 1994. "Intellectual property rights and the mode of technology transfer," Journal of Development Economics, Elsevier, vol. 44(2), pages 381-402, August.
  10. repec:cup:cbooks:9780521540674 is not listed on IDEAS
  11. Saggi, Kamal, 1996. "Entry into a Foreign Market: Foreign Direct Investment versus Licensing," Review of International Economics, Wiley Blackwell, vol. 4(1), pages 99-104, February.
  12. Das, Satya P, 1999. "Direct Foreign Investment versus Licensing," Review of Development Economics, Wiley Blackwell, vol. 3(1), pages 86-97, February.
  13. 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.
  14. J Peter Neary, 2002. "The Road Less Travelled - Oligopoly and Competition Policy in General Equilibrium," Working Papers 200222, School of Economics, University College Dublin.
  15. repec:cup:cbooks:9780521833165 is not listed on IDEAS
  16. Saggi, Kamal, 1999. "Foreign Direct Investment, Licensing, and Incentives for Innovation," Review of International Economics, Wiley Blackwell, vol. 7(4), pages 699-714, November.
  17. Ping Lin & Kamal Saggi, 2004. "Ownership Structure and Technological Upgrading in International Joint Ventures," Review of Development Economics, Wiley Blackwell, vol. 8(2), pages 279-294, 05.
  18. 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.
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