Intellectual Property Rights and Economic Growth
by Rod Falvey, Neil Foster, David Greenaway
Introduction
Developments in the research and policy-making communities have stimulated renewed interest in the links between protection of intellectual property and economic growth. With regard to the former, the emphasis that new growth theory places on the role of technological progress in the growth process, with research and development (R&D) being undertaken either to improve existing products or develop new ones, has stimulated extensive academic research. This has been reinforced by the controversy surrounding the negotiation and implementation of the so-called TRIPs Agreement which followed the Uruguay Round of multilateral trade negotiations, and sets minimum IPR protection standards for WTO members.
In the global economy, individual countries acquire improved technologies through a variety of channels, both direct and indirectly via spillovers. These channels include innovation, licensing, trade, foreign direct investment, imitation and piracy. Since stronger IPR protection has different and sometimes opposing influences on the flow of technology through these channels, the overall effects of stronger IPRs on technology acquisition and aggregate growth are in general ambiguous. The impact of stronger IPR protection is likely to vary across countries depending on their levels of development, as reflected in their capacities to innovate and imitate.
In this paper we investigate the role of IPRs in an empirical growth model for a large panel of developed and developing countries, using threshold regression models. Our results suggest that the relationship between IPR protection and growth depends upon the level of development, as proxied by initial GDP per capita, but in a non-linear way. For low- and high-income countries we find that stronger IPR protection significantly improves growth, but for middle-income countries no such relationship is found. These outcomes are consistent with the view that middle-income countries engage in imitation rather than innovation and may be less likely to benefit from IPR protection.
The rest of the paper is organised as follows. In Section 2, we review the theoretical linkages between IPR protection and growth, while Section 3 considers the existing empirical literature. Section 4 discusses the empirical set-up for our model, the data employed and the results obtained. In Section 5 we summarise and interpret our results.