Trade Development and Political Economy Presents: Arghya Ghosh

Trade Development and Political Economy Presents: Arghya Ghosh: Absorptive capacity, Foreign Direct Investment and Intellectual Property Rights in North-South Trade The authors examine South’s incentive to protect IPR in a North-South duopoly model where (i) the North firm owns a better technology and has the option of serving the South market via exports or FDI, and (ii) the South firm can invest in absorptive capacity to reduce the technology gap. While FDI by North firm makes absorption easier for South, investment in absorptive capacity by the South firm might be higher or lower with FDI. For a given level of trade cost, the North firm prefers FDI to exports if the IPR protection is sufficiently strong. The authors find a non-monotone relationship between trade cost and the degree of IPR protection that maximizes South welfare. Strengthening IPR protection improves South welfare by encouraging North’s FDI for intermediate values of trade cost. Arghya Ghosh is Associate Professor of Economics at the University of New South Wales in Sydney, Australia. His research interests are in international trade and industrial organization.