This paper considers the protection of intellectual property rights (IPR) as a determinant of the mode of foreign direct investment (FDI). By analyzing wholly-owned investment and equity joint venture in vertically related industries, I find that as IPR protection gets more stringent, the propensity to choose equity joint venture decreases. Analysis of the firm-level data set from Taiwanese multinational manufacturing enterprises (MNEs) in 2006 lends supports to this result. This paper also finds that local welfare increases after entry of a multinational enterprise (MNE) if the local market size is not too large. In addition, after MNE’s entry further strengthening of IPR is beneficial to the MNE but is detrimental to local welfare.
Asia-Pacific Journal of Accounting & Economics 22(3), pp.331-345