Intellectual property rights and entry into a foreign market: FDI versus joint ventures

We study the e¤ect of the intellectual property rights (IPR) regime on a multinational \u85rms decision between serving a market via foreign direct investment (FDI) to avoid the exposure of its technology or entering a joint venture (JV) with a local \u85rm, which allows R&D spillovers when IPRs are imperfect. JV is the equilibrium market structure when R&D intensity is moderate and IPRs are strong. A host country can gain from increased IPR protection by encouraging a JV. Once IPRs are protected and a JV would occur, host country policies to strengthen the bargaining power of its \u85rm are optimal.