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

39 Pages Posted: 22 Jun 2006

See all articles by Dermot Leahy

Dermot Leahy

National University of Ireland - University College Dublin; Centre for Economic Policy Research (CEPR)

Alireza Naghavi

University of Bologna - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2006

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.

Keywords: Joint ventures, intellectual property rights, FDI policy, technology transfer, R&D spillovers, bargaining, development

JEL Classification: F13, F23, L24, O24, O32, O34

Suggested Citation

Leahy, Dermot and Naghavi, Alireza, Intellectual Property Rights and Entry into a Foreign Market: FDI vs Joint Ventures (May 2006). CEPR Discussion Paper No. 5672, Available at SSRN: https://ssrn.com/abstract=911288

Dermot Leahy (Contact Author)

National University of Ireland - University College Dublin ( email )

Department of Economics
Belfield
Dublin 4
Ireland
+353 1 706 7620 (Phone)
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Centre for Economic Policy Research (CEPR)

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United Kingdom

Alireza Naghavi

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy

HOME PAGE: http://alirezanaghavi.altervista.org/

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