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

  • Tatsuro Iwaisako


    (Graduate School of Economics, Osaka University)

  • Hitoshi Tanaka


    (Faculty of Economics, Hokkai Gaku-en 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 it 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 outweighs the latter negative effect. Moreover, 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. Further, a similar result can also be obtained in a nonscale effect model.

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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-Rev.

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Length: 57 pages
Date of creation: Aug 2009
Date of revision: Mar 2011
Handle: RePEc:osk:wpaper:0924r
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  1. Ted O'Donoghue & Josef Zweim¸ller, 2004. "Patents in a Model of Endogenous Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 81-123, 03.
  2. Glass, Amy Jocelyn & Wu, Xiaodong, 2007. "Intellectual property rights and quality improvement," Journal of Development Economics, Elsevier, vol. 82(2), pages 393-415, March.
  3. 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.
  4. Gilbert, R. & Shapiro, C., 1988. "Optimal Patent Length And Breadth," Papers 28, Princeton, Woodrow Wilson School - Discussion Paper.
  5. 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.
  6. McCalman, P., 1999. "Reaping What You Sow: An Empirical Analysis of International Patent Harmonization," Papers 374, Australian National University - Department of Economics.
  7. Zigic, Kresimir, 1998. "Intellectual property rights violations and spillovers in North-South trade," European Economic Review, Elsevier, vol. 42(9), pages 1779-1799, November.
  8. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-85, May.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
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