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Trade Liberalization, Absorptive Capacity and the Protection of Intellectual Property Rights

Author

Listed:
  • Arghya Ghosh

    () (School of Economics, the University of New South Wales)

  • Jota Ishikawa

    () (Faculty of Economics, Hitotsubashi University)

Abstract

We examine how trade liberalization afects South’s incentive to protect intellectual property rights (IPR) in a North-South duopoly model where a low-cost North firm competes with a high-cost South firm in the South market. The extent of effective cost difference between North and South depends on South’s imitation, which in turn depends on South’s IPR protection and absorptive capacity and North firm’s location choice and masking effort, all of which are endogenously determined in our model. Even though innovation is exogenous to the model (and hence unffected by South’s IPR policy) we find that strengthening IPR protection in South can improve its welfare. The relationship between trade cost and the degree of IPR protection that maximizes South welfare is non-monotone. South does not have any incentive to protect IPR when trade costs are either zero or prohibitive, while for moderate values of trade cost, South government can strengthen IPR protection, induce FDI and increase South’s welfare. In an extension of the model, where North firm can mask its technology, we show that, even when trade costs are zero or prohibitive, strengthening IPR protection can improve South’s welfare by deterring the North firm from masking its technology. The relationships between location choice/masking decision and South’s investment in absorptive capacity are also explored.

Suggested Citation

  • Arghya Ghosh & Jota Ishikawa, 2013. "Trade Liberalization, Absorptive Capacity and the Protection of Intellectual Property Rights," Discussion Papers 2013-11, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2013-11
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2013-11.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    intellectual property rights; absorptive capacity; FDI; oligopoly; imitation; masking;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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