Import tariff, intellectual property right protection and foreign merger

This paper develops a model of four stages and three players, including the MNE, the corporation and the government of the host country, to analyze the effects of the intellectual property right (IPR) and the trade policies on FDI and social welfare of the host country during the process of privatization of the state-owned assets. Two conclusions emerge in the analysis: firstly, when the market size of the host country is relatively small, either a stronger IPR protection or a higher tariff can attract more FDI. Moreover, only under the condition of weak IPR protection is the government of the host country more likely to use higher tariffs to attract FDI; Secondly, when the market size of the host country is relatively large, neither stronger IPR protection nor higher tariff can attract more FDI, and the optimal tariff chosen by the government of the host country is decreasing in the level of IPR protection.