Ipr Protection and Absorptive Capacity in North-south Trade
نویسندگان
چکیده
We examine South’s incentive to protect IPR in a North-South duopoly model where (i) the North firm owns a better technology and has the option of serving the South market via exports or FDI, and (ii) the South firm can invest in absorptive capacity to reduce the technology gap. While FDI by North firm makes absorption easier for South, investment in absorptive capacity by the South firm might be higher or lower with FDI. For a given level of trade cost, the North firm prefers FDI to exports if the IPR protection is sufficiently strong. We find a non-monotone relationship between trade cost and the degree of IPR protection that maximizes South welfare. Strengthening IPR protection improves South welfare by encouraging North’s FDI for intermediate values of trade cost. JEL classification numbers: F12, F13, D43
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