Tanaka, Hitoshi

foreign direct investment

This paper constructs a North–South quality-ladder model in which foreign direct investment(FDI) is determined by the endogenous location choice of firms, and examines analytically howstrengthening patent protection in the South affects welfare in the South. Strengthening patent protectionincreases the South's welfare by enhancing innovation and FDI, but it also allows the firmswith patents to charge higher prices for their goods, which decreases welfare. However, the modelshows that the former positive welfare effect outweighs the latter negative effect. Moreover, introducingthe strictest form of patent protection in the South, that is, harmonizing patent protection inthe South with that in the North, may maximize welfare in the South as well as in the North. Further,a similar result can also be obtained in a nonscale effect model.

Tanaka, Hitoshi

foreign direct investment