International Know-how Trade and Foreign Direct Investment / Direktinvestitionen und Handel mit Know-how

Martin Klein ()

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 1998, vol. 217, issue 4, 418-435

Abstract: The improved international tradability of services and the better protection of intellectual property rights - both of which have been results of the Uruguay Round - increase the international tradability of know-how. This paper investigates the economic impact of this. It is shown that know-how may be under-traded or over-traded. In the first case know-how is not traded although it would be welfare improving, in the second case know-how trade takes place but welfare is reduced. The results depend on the distinction of a productivity effect and a market power effect of international know-how trade. The welfare-increasing productivity effect arises because trade in know-how raises the buyer's productivity without lowering the seller's. The market power effect arises because trade in know-how redistributes market power between the buyer and the seller and eliminates the seller's competitive edge. Although a more balanced distribution of market power is positive for welfare, there may be situations where an incumbent acquires foreign know-how mainly in order to keep a potential entrant out of its domestic market. These are situations where know-how is over-traded from the point of view of domestic welfare.

Keywords: Strategie trade; industrial organization; duopoly; technology; multinational enterprise; welfare; Strategischer Handel; Industrieökonomik; Duopol; Technologie; multinationale Unternehmung; Wohlfahrt (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:217:y:1998:i:4:p:418-435

DOI: 10.1515/jbnst-1998-0403

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