Pro-Patent Policy in the Knowledge-Based Economy

In a knowledge-based economy, innovation plays a significant role in determining the level of economic growth and social welfare. Meanwhile, patent protection is a pivotal factor for research and development (R&D) incentives, and innovation performance depends on the degree of patent protection. Therefore, elucidating the mechanism for impact of patent protection on innovation; and hence economic growth is a crucial issue from the perspective of macroeconomic policy. Our research questions are twofold. (1) What conditions are necessary for patent protection to effectively promote innovation and economic growth? (2) Can strengthening patent protection enhance social welfare? This study addresses these problems using an expanding variety model of R&D-based endogenous growth. Our major findings are summarized as follows: If an economy satisfies conditions that the productivity in the final goods sector and labor force population are relatively large, while the patent duration elasticity of patent fee is relatively small, extending the patent duration fosters on the rate of innovation, the growth rate of gross domestic product (GDP) per capita, and the growth rate of livelihood-based public infrastructure. Moreover, strengthening patent protection by extending the duration of the patent right does not necessarily enhance social welfare. Furthermore, the patent duration that maximizes social welfare may be shorter than the patent duration that maximizes the growth rate of GDP per capita, the rate of innovation, or the growth rate of livelihood-based public infrastructure.