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Intellectual property rights and North-South trade: Exports vs. foreign direct investment

Author

Listed:
  • Quan Dong
  • Juan Carlos Bárcena-Ruiz
  • María Begoña Garzón

Abstract

This paper examines whether a Northern firm prefers to export or to engage in FDI to serve the South. If the firm engages in FDI, its technology is imitated, and a Southern firm enters the market that may sell in both markets. The Northern firm may invest to prevent product piracy in the North. The two markets may have different sizes. We find that when the cost of preventing product piracy in the North is great enough: (i) If the Southern market is large enough the Northern firm engages in FDI, allowing piracy in its home market, and the South obtains the greater welfare; (ii) If the Southern market is small enough the Northern firm exports and the government of the South imposes a strong Intellectual Property Rights protection, attracting the Northern firm and improving the welfare of both countries.

Suggested Citation

  • Quan Dong & Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2022. "Intellectual property rights and North-South trade: Exports vs. foreign direct investment," Estudios de Economia, University of Chile, Department of Economics, vol. 49(2 Year 20), pages 145-173, December.
    • Handle: RePEc:udc:esteco:v:49:y:2022:i:2:p:145-173
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    File URL: https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/69081/71787
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    More about this item

    Keywords

    Foreign direct investment; intellectual property rights (IPR); North-South trade; imperfect competition.;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • 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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