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Strategic licensing, exports, FDI, and host country welfare

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Uday Bhanu Sinha

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Oxford Economic Papers, 62, 114-131, 2010

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This paper analyses the preference of a foreign firm over serving a host country market and its impact on the host country welfare. It shows 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 show 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 lost country welfare.

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