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Implications of Intellectual Property Rights for Dynamic Gains from Trade

  • Michelle Connolly
  • Diego Valderrama

A simple intellectual property rights (IPRs) framework is introduced into a dynamic quality ladder model of technological diffusion between innovating firms in one country and imitating firms in another country. The presence of technological spillovers and feedback effects between firms in the two countries demonstrates that, even when steady state growth increases, transition costs sometimes dominate steady state welfare gains. Most existing models of international IPRs find that high intellectual property enforcement in the imitating country leads to welfare gains in the innovating country at the expense of the imitating country. In contrast, we find IPR regimes that, even after accounting for transition costs, positively affect welfare in both countries. Preferred IPR regimes maintain competition from imitative activity but enforce some remuneration to innovators for the spillovers they generate. Well-designed IPR regimes imposed at the time of trade liberalization will be welfare enhancing for both regions relative to trade liberalization without IPR enforcement.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282805774670022
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 2 (May)
Pages: 318-322

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Handle: RePEc:aea:aecrev:v:95:y:2005:i:2:p:318-322
Note: DOI: 10.1257/000282805774670022
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References listed on IDEAS
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  1. Sala-i-martin, X. & Barro, R.J., 1995. "technological Diffusion, Convergence and Growth," Papers 735, Yale - Economic Growth Center.
  2. repec:cup:cbooks:9780521833165 is not listed on IDEAS
  3. Gene M Grossman & Edwin L Lai, 2004. "International Protection of Intellectual Property," Levine's Working Paper Archive 122247000000000442, David K. Levine.
  4. repec:cup:cbooks:9780521540674 is not listed on IDEAS
  5. Helpman, Elhanan, 1993. "Innovation, Imitation, and Intellectual Property Rights," Econometrica, Econometric Society, vol. 61(6), pages 1247-80, November.
  6. Michelle P. Connolly & Diego Valderrama, 2005. "North-South technological diffusion and dynamic gains from trade," Working Paper Series 2004-24, Federal Reserve Bank of San Francisco.
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