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Ownership structure and technological upgrading in international joint ventures
Review of Development Economics
  • Ping LIN, Lingnan University, Hong Kong
  • Kamal SAGGI, Southern Methodist University, United States
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Journal article
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In a model of a joint venture between a local and a foreign firm who provide complementary inputs, this paper derives optimal ownership structures under different sharing rules. The local firm's profits may be maximized by assigning a majority share to the foreign firm. Efficiency (i.e., the minimization of double moral hazard) requires that the firm with the more productive input should get majority ownership. When only the foreign firm can upgrade its input, it should receive a larger share than what it receives in the absence of upgrading. The analysis implies that a blanket policy of prohibiting majority foreign ownership is theoretically unfounded.

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Copyright © Blackwell Publishing Ltd 2004

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Citation Information
Lin, P., & Saggi, K. (2004). Ownership structure and technological upgrading in international joint ventures. Review of Development Economics, 8(2), 279-294. doi: 10.1111/j.1467-9361.2004.00233.x