GEP Research Paper 06/47
Joint Venture Instability Under Entry
Shantanu Banerjee and Arijit Mukherjee
Abstract
Many developing countries are liberalizing their economies to allow higher equity participation by the foreign firms. We argue that the possibility of joint venture can reduce the number of technology transfers. Hence, joint venture can reduce the welfare of a host-country by creating higher market-concentration. However, higher profit generation under joint venture encourages the foreign firm to transfer relatively better technology and may make the host-country and the firms better-off under joint venture than licensing. For sufficiently large efficiency-gain, the host-country allows fully owned subsidiary of the foreign firm.
Issued in December 2006.
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