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Oxford Economic Papers Advance Access published online on June 10, 2009
Oxford Economic Papers, doi:10.1093/oep/gpp014
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© Oxford University Press 2009 All rights reserved

Strategic licensing, exports, FDI, and host country welfare

Uday Bhanu Sinha

Department of Economics, Delhi School of Economics, University of Delhi, Delhi – 110 007, India; e-mail: sinhauday{at}yahoo.com

JEL classifications:: D43, F13, F23, L13


  Abstract

This paper analyses the preference of a foreign firm over serving a host country market and its impact on the host country welfare. We show that the foreign firm can choose licensing its superior technology to a host firm strategically which influences the foreign firm's subsequent preference over exporting and FDI. The effect on the host country welfare depends on the structure of license fee and it is shown that strategic licensing might lead to welfare loss for the host country. To this end this paper also prescribes either an optimal tariff scheme or a ban on licensing to maximize the host country welfare.


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