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Implications of Intellectual Property Rights for Dynamic Gains from Trade

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  • Michelle Connolly
  • Diego Valderrama

Abstract

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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Suggested Citation

  • Michelle Connolly & Diego Valderrama, 2005. "Implications of Intellectual Property Rights for Dynamic Gains from Trade," American Economic Review, American Economic Association, vol. 95(2), pages 318-322, May.
  • 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. Gene M. Grossman & Edwin L.-C. Lai, 2004. "International Protection of Intellectual Property," American Economic Review, American Economic Association, vol. 94(5), pages 1635-1653, December.
    2. Michelle Connolly & Diego Valderrama, 2005. "Implications of Intellectual Property Rights for Dynamic Gains from Trade," American Economic Review, American Economic Association, pages 318-322.
    3. Barro, Robert J & Sala-i-Martin, Xavier, 1997. "Technological Diffusion, Convergence, and Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 1-26, March.
    4. Helpman, E., 1992. "Innovation, Imitation and intellectual Property Rights," Harvard Institute of Economic Research Working Papers 1597, Harvard - Institute of Economic Research.
    5. Helpman, Elhanan, 1993. "Innovation, Imitation, and Intellectual Property Rights," Econometrica, Econometric Society, vol. 61(6), pages 1247-1280, November.
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    Cited by:

    1. Fukui, E. Tani & Hammer, Alexander B. & Jones, Lin Z., 2013. "Are U.S. exports influenced by stronger IPR protection measures in recipient markets?," Business Horizons, Elsevier, vol. 56(2), pages 179-188.
    2. Liao, Pei-Cheng & Wong, Kar-yiu, 2009. "R&D subsidy, intellectual property rights protection, and North-South trade: How good is the TRIPS agreement?," Japan and the World Economy, Elsevier, vol. 21(2), pages 191-201, March.
    3. Alireza Naghavi & Yingyi Tsai, 2015. "Cross-Border Intellectual Property Rights: Contract Enforcement and Absorptive Capacity," Scottish Journal of Political Economy, Scottish Economic Society, pages 211-226.
    4. Collins, Tracy, 2015. "Imitation: A catalyst for innovation and endogenous growth," Economic Modelling, Elsevier, vol. 51(C), pages 299-307.
    5. Stryszowski, P.K., 2006. "Intellectual Property Rights, Globalization and Growth," Discussion Paper 2006-76, Tilburg University, Center for Economic Research.
    6. Caregari, Davide, 2010. "Diritti di proprietà intellettuale: sviluppi recenti e prospettive di riforma
      [Intellectual property rights: recent developements and reform prospects]
      ," MPRA Paper 28132, University Library of Munich, Germany.
    7. Mondal, Debasis & Ranjan Gupta, Manash, 2009. "Endogenous imitation and endogenous growth in a North-South model: A theoretical analysis," Journal of Macroeconomics, Elsevier, pages 668-684.
    8. Hua Liang & Zongyi Zhang, 2012. "The effects of industry characteristics on the sources of technological product and process innovation," The Journal of Technology Transfer, Springer, vol. 37(6), pages 867-884, December.

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