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Patent rights, product market reforms, and innovation

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  • Philippe Aghion

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  • Peter Howitt

    ()

  • Susanne Prantl

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Abstract

In this paper, we provide empirical evidence to the effect that strong patent rights may complement competition-increasing product market reforms in fostering innovation. First, we find that the product market reform induced by the large-scale internal market reform of the European Union in 1992 enhanced, on average, innovative investments in manufacturing industries of countries with strong patent rights since the pre-sample period, but not so in industries of countries with weaker patent rights. Second, the positive response to the product market reform is more pronounced in industries where, in general, innovators tend to value patent protection higher than in other industries, except for the manufacture of electrical and optical equipment. The observed complementarity between competition and patent protection can be rationalized using a Schumpeterian growth model with step-by-step innovation. In such a model, better patent protection prolongs the period over which a firm that successfully escapes competition by innovating, actually enjoys higher monopoly rents from its technological upgrade. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Philippe Aghion & Peter Howitt & Susanne Prantl, 2015. "Patent rights, product market reforms, and innovation," Journal of Economic Growth, Springer, vol. 20(3), pages 223-262, September.
  • Handle: RePEc:kap:jecgro:v:20:y:2015:i:3:p:223-262
    DOI: 10.1007/s10887-015-9114-3
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    Cited by:

    1. Bournakis, Ioannis & Christopoulos, Dimitris & Mallick, Sushanta, 2015. "Knowledge Spillovers, Absorptive Capacity and Growth: An Industry-level Analysis for OECD Countries," MPRA Paper 63542, University Library of Munich, Germany.
    2. Paunov, Caroline, 2016. "Corruption's asymmetric impacts on firm innovation," Journal of Development Economics, Elsevier, vol. 118(C), pages 216-231.
    3. Stiglitz, Joseph E., 2015. "Leaders and followers: Perspectives on the Nordic model and the economics of innovation," Journal of Public Economics, Elsevier, vol. 127(C), pages 3-16.
    4. Bournakis, Ioannis & Christopoulos, Dimitris & Mallick, Sushanta, 2015. "Knowledge Spillovers and Output per Worker: An Industry-level Analysis for OECD Countries," MPRA Paper 84948, University Library of Munich, Germany, revised 05 Oct 2016.
    5. A. Minniti & F. Venturini, 2014. "R&D Policy and Schumpeterian Growth: Theory and Evidence," Working Papers wp945, Dipartimento Scienze Economiche, Universita' di Bologna.
    6. Suzuki, Keishun, 2017. "Competition, Patent Protection, and Innovation in an Endogenous Market Structure," MPRA Paper 77133, University Library of Munich, Germany.
    7. Aghion, Philippe & Akcigit, Ufuk & Howitt, Peter, 2014. "What Do We Learn From Schumpeterian Growth Theory?," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 515-563 Elsevier.
    8. Bournakis, Ioannis & Vecchi, Michela & Venturini, Francesco, 2015. "Off-shoring, specialization and R&D," MPRA Paper 68382, University Library of Munich, Germany.
    9. Cui, Jingbo & Li, Xiaogang, "undated". "Innovation and Firm Productivity: Evidence from the US Patent Data," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235603, Agricultural and Applied Economics Association.
    10. Alessandro Barattieri & Ingo Borchert & Aaditya Mattoo, 2016. "Cross-border mergers and acquisitions in services: The role of policy and industrial structure," Canadian Journal of Economics, Canadian Economics Association, vol. 49(4), pages 1470-1501, November.
    11. Philippe Aghion, 2017. "Entrepreneurship and growth: lessons from an intellectual journey," Small Business Economics, Springer, vol. 48(1), pages 9-24, January.
    12. repec:kap:iecepo:v:14:y:2017:i:2:d:10.1007_s10368-016-0371-1 is not listed on IDEAS
    13. Smeets, Roger & de Vaal, Albert, 2016. "Intellectual Property Rights and the productivity effects of MNE affiliates on host-country firms," International Business Review, Elsevier, vol. 25(1), pages 419-434.
    14. repec:taf:oabmxx:v:3:y:2016:i:1:p:1216727 is not listed on IDEAS
    15. repec:gam:jecomi:v:5:y:2017:i:3:p:34-:d:111608 is not listed on IDEAS
    16. Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2017. "What promotes R&D? Comparative evidence from around the world," Research Policy, Elsevier, vol. 46(2), pages 447-462.
    17. Paunov C., 2014. "Democratizing intellectual property systems : how corruption hinders equal opportunities for firms," MERIT Working Papers 077, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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    Keywords

    Intellectual property rights; Competition; Innovation; O3; L1; O4; L5;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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