Entry into a Foreign Market: Foreign Direct Investment Versus Licensing
REVIEW OF INTERNATIONAL ECONOMICS, (4) February 1996
Posted: 17 Apr 1998
We compare foreign direct investment (FDI) and technology licensing as two modes of entry into a foreign market. While direct entry via FDI dissipates rents in the host country, opportunistic competition from a licensee may erode rents in the entrant's other markets. Since FDI increases competition in the host country while licensing stifles it, welfare is higher under FDI than under licensing.
JEL Classification: F23, O23, O34
Suggested Citation: Suggested Citation