Trade Liberalization, Absorptive Capacity and the Protection of Intellectual Property Rights
AbstractWe examine how trade liberalization afects South’s incentive to protect intellectual property rights (IPR) in a North-South duopoly model where a low-cost North firm competes with a high-cost South firm in the South market. The extent of effective cost difference between North and South depends on South’s imitation, which in turn depends on South’s IPR protection and absorptive capacity and North firm’s location choice and masking effort, all of which are endogenously determined in our model. Even though innovation is exogenous to the model (and hence unffected by South’s IPR policy) we find that strengthening IPR protection in South can improve its welfare. The relationship between trade cost and the degree of IPR protection that maximizes South welfare is non-monotone. South does not have any incentive to protect IPR when trade costs are either zero or prohibitive, while for moderate values of trade cost, South government can strengthen IPR protection, induce FDI and increase South’s welfare. In an extension of the model, where North firm can mask its technology, we show that, even when trade costs are zero or prohibitive, strengthening IPR protection can improve South’s welfare by deterring the North firm from masking its technology. The relationships between location choice/masking decision and South’s investment in absorptive capacity are also explored.
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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2013-11.
Length: 27 pages
Date of creation: Nov 2013
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More information through EDIRC
intellectual property rights; absorptive capacity; FDI; oligopoly; imitation; masking;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-INO-2013-06-16 (Innovation)
- NEP-IPR-2013-06-16 (Intellectual Property Rights)
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