Working Paper: CEPR ID: DP5672
Authors: Dermot Leahy; Alireza Naghavi
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: bargaining; development; FDI; policy; intellectual property rights; joint ventures; R&D spillovers; technology transfer
JEL Codes: F13; F23; L24; O24; O32; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| IPR strength (O34) | mode of entry (FDI vs. JVs) (F23) |
| R&D intensity (O32) | mode of entry (FDI vs. JVs) (F23) |
| IPR strength + R&D intensity (O39) | preference for JVs (L24) |
| R&D intensity (moderate) + strong IPR (O39) | JVs as equilibrium market structure (L13) |
| improving IPR regime (O34) | attractiveness for JVs (F23) |