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A Welfare Analysis of Global Patent Protection in a Model with Endogenous Innovation and Foreign Direct Investment

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Author Info

  • Tatsuro Iwaisako

    ()
    (Graduate School of Economics, Osaka University)

  • Hitoshi Tanaka

    ()
    (Faculty of Economics, Hokkai Gaku-en University)

  • Koichi Futagami

    ()
    (Graduate School of Economics, Osaka University)

Abstract

This paper constructs a North-South quality-ladder model in which foreign direct investment (FDI) is determined by the endogenous location choice of firms, and examines analytically how strengthening patent protection in the South affects welfare in the South. Strengthening patent protection increases the Southfs welfare by enhancing innovation and FDI, but it also allows the firms with patents to charge higher prices for their goods, which decreases welfare. However, the model shows that the former positive welfare effect outweighs the latter negative effect. Moreover, introducing the strictest form of patent protection in the South, that is, harmonizing patent protection in the South with that in the North, may maximize welfare in the South as well as in the North. Further, a similar result can also be obtained in a nonscale effect model.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0924R.pdf
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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 09-24-Rev.

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Length: 57 pages
Date of creation: Aug 2009
Date of revision: Mar 2011
Handle: RePEc:osk:wpaper:0924r

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Keywords: foreign direct investment; innovation; intellectual property rights protection; welfare analysis;

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References

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  1. Lai, Edwin L. -C., 1998. "International intellectual property rights protection and the rate of product innovation," Journal of Development Economics, Elsevier, vol. 55(1), pages 133-153, February.
  2. McCalman, P., 1999. "Reaping What You Sow: An Empirical Analysis of International Patent Harmonization," ANU Working Papers in Economics and Econometrics 1999-374, Australian National University, College of Business and Economics, School of Economics.
  3. Ted O'Donoghue & Josef Zweim¸ller, 2004. "Patents in a Model of Endogenous Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 81-123, 03.
  4. Futagami, Koichi & Iwaisako, Tatsuro, 2007. "Dynamic analysis of patent policy in an endogenous growth model," Journal of Economic Theory, Elsevier, vol. 132(1), pages 306-334, January.
  5. Grinols, Earl & Lin, Hwan C., 2006. "Global patent protection: channels of north and south welfare gain," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 205-227, February.
  6. Richard Gilbert and Carl Shapiro., 1989. "Optimal Patent Length and Breadth," Economics Working Papers 89-102, University of California at Berkeley.
  7. Elias Dinopoulos & Constantina Kottaridi, 2008. "The Growth Effects of National Patent Policies," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 499-515, 08.
  8. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-85, May.
  9. Zigic, Kresimir, 1998. "Intellectual property rights violations and spillovers in North-South trade," European Economic Review, Elsevier, vol. 42(9), pages 1779-1799, November.
  10. Glass, Amy Jocelyn & Wu, Xiaodong, 2007. "Intellectual property rights and quality improvement," Journal of Development Economics, Elsevier, vol. 82(2), pages 393-415, March.
  11. Debasis Mondal & M. Gupta, 2008. "Innovation, imitation and multinationalisation in a North–South model: a theoretical note," Journal of Economics, Springer, vol. 94(1), pages 31-62, 06.
  12. Ai-Ting Goh & Jacques Olivier, 2002. "Optimal Patent Protection in a Two-Sector Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1191-1214, November.
  13. Walter G. Park & Douglas Lippoldt, 2005. "International licensing and the strengthening of intellectual property rights in developing countries during the 1990s," OECD Economic Studies, OECD Publishing, vol. 2005(1), pages 7-48.
  14. Glass, Amy Jocelyn & Saggi, Kamal, 2002. "Intellectual property rights and foreign direct investment," Journal of International Economics, Elsevier, vol. 56(2), pages 387-410, March.
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Citations

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Cited by:
  1. Tanaka, Hitoshi & Iwaisako, Tatsuro, 2014. "Intellectual property rights and foreign direct investment: A welfare analysis," European Economic Review, Elsevier, vol. 67(C), pages 107-124.
  2. Morita, Tadashi, 2012. "Dynamic analysis of location choice by multinational firms," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1063-1076.
  3. Davis, Colin & Hashimoto, Ken-ichi, 2014. "Patterns of technology, industry concentration, and productivity growth without scale effects," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 266-278.
  4. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2014. "Stage-dependent intellectual property rights," Journal of Development Economics, Elsevier, vol. 106(C), pages 239-249.
  5. Angus C. Chu & Guido Cozzi & Silvia Galli, 2011. "Innovating Like China: a Theory of Stage-Dependent Intellectual Property Rights," Working Papers 2011_14, Durham University Business School.
  6. Tatsuro Iwaisako, 2012. "Welfare effects of patent protection and productive public services: why do developing countries prefer weaker patent protection?," Discussion Papers in Economics and Business 12-19, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  7. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2013. "Theory and Empirics of Stage-Dependent Intellectual Property Rights," Economics Working Paper Series 1306, University of St. Gallen, School of Economics and Political Science.
  8. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2013. "A Schumpeterian Analysis of Monetary Policy, Innovation and North-South Technology Transfer," Economics Working Paper Series 1319, University of St. Gallen, School of Economics and Political Science.
  9. Lin, Hwan C., 2013. "Optimal Patent Life in a Variety-Expansion Growth Model," MPRA Paper 49790, University Library of Munich, Germany.

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