Innovation, productivity and intellectual property reform in an emerging market economy: evidence from India

This paper attempts to address the question whether intellectual property (IP) reform post-Trade-Related Intellectual Property Rights agreement significantly shifted out the technology or innovation frontier, thereby raising overall productivity in the manufacturing sector of the emerging market economy of India. We explore this question using data on a reasonably large sample of manufacturing firms, for the recent period 1994–2011. Using evidence that the reform was largely exogenously driven, we note that endogeneity problems emanate mainly from the heterogeneity of its impact, that is, from the level of IP intensity of the firms and the R&D activities of the firms. We correct for such possible endogeneity biases by estimating this heterogeneity explicitly by employing varying coefficients for conditional difference-in-differences models. Our results reveal a significant outward shift in the technical or innovation frontier, but only an insignificant increase in productivity, consequent to the IP reform. A one-unit increase in the IP index is found to be associated with a response coefficient of about 0.05 in the technical frontier index for the IP-intensive firms compared to about 0.01 in the technical frontier index for the non-IP-intensive firms, both impacts being strongly significant by themselves as well as significantly different from each other. The insignificant productivity response on account of IP reform per se could at least partly be due to firms lagging behind in the adoption of the improved best practice technology.