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

  • Hitoshi Tanaka


    (Faculty of Economics, Hokkai Gaku-en University)

  • Tatsuro Iwaisako


    (Graduate School of Economics, Osaka University)

  • Koichi Futagami


    (Graduate School of Economics, Osaka University)

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 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 overcomes the latter negative one, and 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.

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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.

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Length: 35 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:osk:wpaper:0924
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  1. Richard Gilbert and Carl Shapiro., 1989. "Optimal Patent Length and Breadth," Economics Working Papers 89-102, University of California at Berkeley.
  2. Zigic, Kresimir, 1998. "Intellectual property rights violations and spillovers in North-South trade," European Economic Review, Elsevier, vol. 42(9), pages 1779-1799, November.
  3. 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.
  4. 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.
  5. 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.
  6. Glass, Amy Jocelyn & Wu, Xiaodong, 2007. "Intellectual property rights and quality improvement," Journal of Development Economics, Elsevier, vol. 82(2), pages 393-415, March.
  7. O'Donoghue, Ted & Zweimüller, Josef, 1998. "Patents in a Model of Endogenous Growth," Economics Series 56, Institute for Advanced Studies.
  8. 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.
  9. 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.
  10. 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.
  11. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-85, May.
  12. 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.
  13. 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.
  14. 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.
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