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Foreign ownership, international joint ventures and strategic investment

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  • Sawada, Yukiko

Abstract

We investigate the strategic relationship between a foreign firm and a local firm in an international joint venture (IJV). We develop a simple partial equilibrium model in which a local firm invests in skills, which affects the productivity of the IJV, and the foreign firm decides whether to implement an IJV or not. In equilibrium, foreign ownership is a key factor that determines the investment level and the foreign firm's strategy. If foreign ownership is too low or too high, the foreign firm cannot induce the local partner to invest in skills, a situation that provides the lowest payoff for both agents. If it is at a medium level, the local partner invests in management skill and the foreign firm chooses the IJV strategy. In this case, both agents receive a higher payoff.

Suggested Citation

  • Sawada, Yukiko, 2018. "Foreign ownership, international joint ventures and strategic investment," MPRA Paper 86519, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86519
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    References listed on IDEAS

    as
    1. Ping Lin & Kamal Saggi, 2004. "Ownership Structure and Technological Upgrading in International Joint Ventures," Review of Development Economics, Wiley Blackwell, vol. 8(2), pages 279-294, May.
    2. Seungwha (Andy) Chung & Harbir Singh & Kyungmook Lee, 2000. "Complementarity, status similarity and social capital as drivers of alliance formation," Strategic Management Journal, Wiley Blackwell, vol. 21(1), pages 1-22, January.
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    More about this item

    Keywords

    international joint venture; foreign ownership; skill investment;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • F19 - International Economics - - Trade - - - Other

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