Import Tariff, Intellectual Property Right Protection, Foreign Equity Limit And Foreign Joint Venture

Nowadays, FDI is more and more active all around the world. It also plays a more important role for developing countries'development. Base on different interests, there are different economic strategies of the two sides that may be somehow conflictive. On the one hand, multinational enterprises (MNE) make out their investing decisions and entering patterns after analyzing the environment of host countries, purchase profit all around the world. On the other hand, governments of host countries guild FDI's flow direction to improve their social welfare through combination of different policies. This paper sets up a situation that the host country attract the MNE to invest for building a joint venture that contains state-owned capital, then develops a model of three stages and three players, including the MNE, the corporation and the government of the host country. In the first stage, the government of the host country set up certain level of tariff, intellectual property right (IPR) protection, foreign equity limit (FEL). In the second stage, the MNE decides which entering pattern to choose. In the third stage, firms compete in Cournot fashion in the host country's market. The conclusion is, the government of the host country will set up an appropriate level of foreign equity to enhance its social welfare. But on the other side, the MNE can also enhance or reduce its technological input to impact the host country's welfare, in order to protect its own profit. It proves that in the process of inviting investments from overseas, the government of the host country should set up an appropriate policy combination, to attract FDI and at the same time improve its own social welfare. This paper's latter part will do an experience analysis and further discuss China's FDI policies.