Duration of Rent Extraction and the Entry Mode Decision of Multinational Enterprises

Galina An, Keith Maskus and Thitima Puttitanun

Review of Development Economics, 2008, vol. 12, issue 4, 861-876

Abstract: The prior literature is ambiguous about the effects of stronger intellectual property rights (IPR) on the choice of a multinational firm's mode of entry into foreign markets. However, available indexes of IPR protection exist only at the country level and do not identify interindustry variation in the ability to extract rents through exclusive rights and other factors. The authors introduce this dimension and compute a parameter that reflects the relative length of time that positive profits may be earned in various industries. Estimation results find that strengthening IPR would reduce exporting in all industries in the sample. However, it would raise (reduce) foreign direct investment, relative to licensing, in industries with shorter (longer) rent‐extraction times.

Date: 2008
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