The choice between an international joint venture and a wholly-owned subsidiary in a developing country under technology spillover effects

Abstract

A general equilibriumm model of a foreign multinational enterprise's decisions on establishing a wholly-owned subsidiary or forming a joint venture is built on firm-specific knowledge and plant-specific knowledge when there are intraindustry and interindustry technology spillovers. The welfare effects of a host developing country under closed economies, unrestricted foreign direct investment, and the policy of minimum local ownership requirements are compared. A developing country's worry is confirmed: Introduction of competition from foreign firms may not improve the welfare of the host country. However, the minimum local ownership requirement is Pareto-superior to a closed economy.

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Leung, Wf. The choice between an international joint venture and a wholly-owned subsidiary in a developing country under technology spillover effects. Open Econ Rev 6, 341–368 (1995). https://doi.org/10.1007/BF01000387

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Key words

  • multinational enterprises
  • joint ventures
  • wholly-owned subsidiaries
  • technology spillovers
  • minimum local ownership requirements