Abstract
This article considers the protection of intellectual property rights (IPR) as a determinant of the mode of foreign direct investment. By analyzing wholly owned investment and equity joint venture (JV) in vertically related industries, I find that as IPR protection gets more stringent, the propensity to choose equity JV decreases. Analysis of the firm-level data set from Taiwanese multinational manufacturing enterprises in 2006 lends supports to this result. This article also finds that local welfare increases after entry of a multinational enterprise (MNE) if the local market size is not too large. In addition, after MNE’s entry, further strengthening of IPR is beneficial to the MNE but is detrimental to local welfare.
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