Endogenous Process Innovation under Piracy and Multinational Enterprise

A 2 2 2 model with endogenous process innovation describes two regimes for international technology transfer: multinational enterprise, in which the innovating rm receives all rents from foreign and domestic use of the innovation, and piracy, in which some are all of the rents are kept in the technology-receiving country. Piracy increases the unit requirements for the factor which is scarce in the recipient country, and decreases use of its abundant factor, reducing income in the technology recipient. Any piracy regime can be dominated by a combination of no-piracy and transfers from the innovator to the recipient, with increases in both welfare in the recipient country and innovator pro ts.