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

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  • Leahy, Dermot
  • Naghavi, Alireza

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.

Suggested Citation

  • Leahy, Dermot & Naghavi, Alireza, 2006. "Intellectual Property Rights and Entry into a Foreign Market: FDI vs Joint Ventures," CEPR Discussion Papers 5672, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5672
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    References listed on IDEAS

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    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 1133-1137, December.
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    Cited by:

    1. Alireza Naghavi & Yingyi Tsai, 2015. "Cross-Border Intellectual Property Rights: Contract Enforcement and Absorptive Capacity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(2), pages 211-226, May.
    2. Alireza Naghavi, 2007. "Strategic Intellectual Property Rights Policy and North-South Technology Transfer," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(1), pages 55-78, April.

    More about this item

    Keywords

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

    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, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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