Working Paper

Implications of intellectual property rights for dynamic gains from trade

Abstract: A simple intellectual property rights (IPRs) framework is introduced into a dynamic quality ladder model of technological diffusion between innovating firms in one country and imitating firms in another country. The presence of technological spillovers and feedback effects between firms in the two countries demonstrates that, even when steady state growth increases, transition costs sometimes dominate steady state welfare gains. Most existing models of international IPRs find that high intellectual property enforcement in the imitating country leads to welfare gains in the innovating country at the expense of the imitating country. In contrast, we find IPR regimes that, even after accounting for transition costs, positively affect welfare in both countries. Preferred IPR regimes maintain competition from imitative activity but enforce some remuneration to innovators for the spillovers they generate. Well-designed IPR regimes imposed at the time of trade liberalization will be welfare enhancing for both regions relative to trade liberalization without IPR enforcement.

Keywords: Intellectual property; Research and development; Trade;

Status: Published in American Economic Review Papers and Proceedings, v. 95, no. 2 (May 2005) pp. 318-322

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2005

Number: 2004-23