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

Quan Dong, Juan Bárcena-Ruiz and María Begoña Garzón ()

Estudios de Economia, 2022, vol. 49, issue 2 Year 2022, 145-173

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.

Keywords: Foreign direct investment; intellectual property rights (IPR); North-South trade; imperfect competition. (search for similar items in EconPapers)
JEL-codes: F13 L13 O34 (search for similar items in EconPapers)
Date: 2022
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