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Intellectual property rights, international licensing and foreign direct investment

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  • Kuang-Cheng Andy Wang
  • Yi-Jie Wang
  • Wen-Jung Liang

Abstract

This paper develops a North-South trade model to examine the effect of the enforcement of intellectual property rights (IPR) in the South on inward foreign direct investment (FDI) by taking into account international licensing and the informational advantage of FDI. The focus of this paper is on the strategic influence of international licensing on the optimal entry mode of firm N. The main findings of this paper are as follows. First, the optimal entry mode for firm N in the absence of IPR protection is FDI when the innovation size is large but the variance of demand and the fixed setup cost are small, while selecting exporting otherwise. Second, the enforcement of IPR in the South can promote FDI when the innovation size is small, while discouraging FDI when the innovation size is moderate and large. Third, the enforcement of IPR protection will most likely decrease the total output and the welfare level in the South under international licensing, while the reverse may occur as a result of changing the firm N’s entry mode from FDI to exporting.

Suggested Citation

  • Kuang-Cheng Andy Wang & Yi-Jie Wang & Wen-Jung Liang, 2016. "Intellectual property rights, international licensing and foreign direct investment," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 23(3), pages 291-305, July.
    • Handle: RePEc:taf:raaexx:v:23:y:2016:i:3:p:291-305
    DOI: 10.1080/16081625.2016.1188450
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    Cited by:

    1. Xu, Lili & Lee, Sang-Ho, 2020. "Strategic Relations between Corporate Social Responsibility and Partial Privatization Policy with Foreign Penetration," MPRA Paper 100770, University Library of Munich, Germany.
    2. Sumanjeet Singh, 2018. "The State of IP protection, Exploitation and Valuation: Evidence from Select Indian Micro, Small and Medium Enterprises (MSMEs)," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 4(2), pages 159-176, July.
    3. Chang Ray-Yun & Hwang Hong & Peng Cheng-Hau, 2017. "Competition, Product Innovation and Licensing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(1), pages 1-14, February.
    4. Dan Sasaki, 2016. "Infinite horizon oligopoly with asynchronous moves: Cournot-Bertrand reversal," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 23(3), pages 327-341, July.
    5. Xu, Lili & Lee, Sang-Ho & Matsumura, Toshihiro, 2017. "Ex-ante versus ex-post privatization policies with foreign penetration in free-entry mixed markets," International Review of Economics & Finance, Elsevier, vol. 50(C), pages 1-7.
    6. Lili Xu & Fanrui Su & Sang-Ho Lee, 2023. "Strategic corporate social responsibility and partial privatization policy with foreign penetration," The Japanese Economic Review, Springer, vol. 74(2), pages 251-278, April.

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