WHY DO MANDATED INTERNATIONAL JOINT VENTURES STILL EXIST?

It is widely believed that restrictions against foreign direct investment (FDI) should be eliminated altogether. However, local equity requirements (LERs) that effectively mandate multinational enterprises (MNEs) to enter through international joint ventures (IJVs) are still common and are seemingly persistent. We seek to understand why and how governments are motivated to adopt LERs. We demonstrate that LERs can in fact be host governments' optimal choices when regulating the entry of MNEs into domestic markets formerly dominated by public firms. (JEL F13, F23, L32)