Pro-Patent Policy in the Knowledge-Based Economy

Noda, Hideo and Fang, Fengqi (2025): Pro-Patent Policy in the Knowledge-Based Economy.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic growth, Innovation, Patent duration, Patent fee, R\&D, Social welfare
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

References

Acemoglu, D. (2009), Introduction to Modern Economic Growth, Princeton: Princeton University Press.

Archibugi, D. and Filippetti, A. (2010), The Globalisation of Intellectual Property Rights: Four Learned Lessons and Four Theses, Global Policy, 1(2), pp. 137-149.

Aghion, P. and Howitt, P. (1992), A Model of Growth through Creative Destruction, Econometrica, 60(2), pp. 323-351.

Arnold, L. G. (2000), Stability of the Market Equilibrium in Romer's Model of Endogenous Technological Change: A Complete Characterization, Journal of Macroeconomics, 22(1), pp. 69-84.

Arrow, K. J. and Kurz, M. (1970), Public Investment, the Rate of Return, and Optimal Fiscal Policy, Baltimore: Johns Hopkins Press.

Arza, V., Lopez, A., Montes-Rojas, G., and Pascuini, P. (2023), In the Name of TRIPS: The Impact of IPR Harmonisation on Patent Activity in Latin America, Research Policy, 52(6), pp. 1-20.

Baier, S. L. and Glomm, G. (2001), Long-Run Growth and Welfare Effects of Public Policies with Distortionary Taxation, Journal of Economic Dynamics and Control. 25(12), pp. 2007-2042.

Barro, R. J. (1990), Government Spending in a Simple Model of Endogenous Growth, Journal of Political Economy, 98(5), pp. S103-S125.

Barro, R. J. and Sala-i-Martin, X. (2004), Economic Growth, 2nd Edition, Cambridge: The MIT Press.

Benassy, J-P. (1998), Is There Always Too Little Research in Endogenous Growth with Expanding Product Variety?, European Economic Review, 42(1), pp. 61-69.

Benassy, J-P. (2011), Macroeconomic Theory, Oxford: Oxford University Press.

Brock, W. A. and Taylor, M. S. (2005), Economic Growth and the Environment: A Review of Theory and Empirics, In: Aghion, P. and Durlauf, S. (Eds.), Handbook of Economic Growth, Vol.1B, pp. 1749-1821, Amsterdam: Elsevier.

Bucci, A., Carbonari, L., and Trovato, G. (2021), Variety, Competition, and Population in Economic Growth: Theory and Empirics, Macroeconomic Dynamics, 25(5), pp. 1303-1330.

Chen, M. X. and Iyigun, M. (2011), Patent Protection and Strategic Delays in Technology Development: Implications for Economic Growth, Southern Economic Journal, 78(1), pp. 211-232.

Chen, S-H. and Guo, J-T. (2018), On Indeterminacy and Growth under Progressive Taxation and Utility-Generating Government Spending, Pacific Economic Review. 23(3), pp. 533-543.

Chen, W., Yu, X., and Yang, W. (2024), Is Worldwide Patent Protection Converging? A Cross-Country Index of Patent Protection Strength 1990-2020, Technology in Society, 76(C), pp. 1-20.

Chou, C-F. and Shy, O. (1993), The Crowding-Out Effects of Long Duration of Patents, RAND Journal of Economics, 24(2), pp. 304-312.

Chu, A. C. (2010), Effects of Patent Length on R&D: A Quantitative DGE Analysis, Journal of Economics, 99(2), pp. 117-140.

Chu, A. C. (2022), Patent Policy and Economic Growth: A Survey, Manchester School, 90(2), pp. 237-254.

Chu, A. C. (2024), Macroeconomic Effects of Intellectual Property Rights: An Updated Survey, In: Park, W. G. (Ed.), Handbook of Innovation and Intellectual Property Rights: Evolving Scholarship and Reflections, pp. 13-26, Cheltenham: Edward Elgar Publishing.

Chu, A. C., Cozzi, G., Fan, H., Pan, S., and Zhang, M. (2020), Do Stronger Patents Stimulate or Stifle Innovation? The Crucial Role of Financial Development, Journal of Money, Credit and Banking, 52(5), pp. 1305-1322.

Chu, A. C., Pan, S., and Sun, M. (2012), When Does Elastic Labor Supply Cause an Inverted-U Effect of Patents on Innovation?, Economics Letters, 117(1), pp. 211-213.

Dinopoulos, E. and Kottaridi, C. (2008), The Growth Effects of National Patent Policies, Review of International Economics, 16(3), pp. 499-515.

Dosi, G., Palagi, E., Roventini, A., and Russo, E. (2023), Do Patents Really Foster Innovation in the Pharmaceutical Sector? Results from an Evolutionary, Agent-Based Model, Journal of Economic Behavior & Organization, 212(C), pp. 564-589.

Fang, F. and Noda, H. (2024), Reconsidering Agricultural Productivity, Comparative Advantage and Economic Growth, Applied Economics Letters (in press).

Futagami, K. and Iwaisako, T. (2007), Dynamic Analysis of Patent Policy in an Endogenous Growth Model, Journal of Economic Theory, 132(1), 306-334.

Furukawa, Y. (2007), The Protection of Intellectual Property Rights and Endogenous Growth: Is Stronger Always Better?, Journal of Economic Dynamics and Control, 31(11), pp. 3644-3670.

Furukawa, Y. (2010), Intellectual Property Protection and Innovation: An Inverted-U Relationship, Economics Letters, 109(2), pp. 99-101.

Gilbert, R. and Shapiro, C. (1990), Optimal Patent Length and Breadth, RAND Journal of Economics, 21(1), pp. 106-112.

Ginarte, J. C. and Park, W. G. (1997), Determinants of Patent Rights: A Cross-National Study, Research Policy, 26(3), pp. 283-301.

Goh, A. T. and Olivier, J. (2002), Optimal Patent Protection in a Two-Sector Economy, International Economic Review, 43(4), pp. 1191-1214.

Greiner, A., Semmler, W. and Gong, G. (2005), The Forces of Economic Growth: A Time Series Perspective, Princeton: Princeton University Press.

Grossman, G. M. and Helpman, E. (1991), Innovation and Growth in the Global Economy, Cambridge: The MIT Press.

Horowitz, A. W. and Lai, E. L. C. (1996), Patent Length and the Rate of Innovation, International Economic Review, 37(4), pp. 785-801.

Iwaisako, T. (2013), Welfare Effects of Patent Protection and Productive Public Services: Why Do Developing Countries Prefer Weaker Patent Protection?, Economics Letters, 118(3), pp. 478-481.

Iwaisako, T. (2023), Optimal Mix of R\&D Subsidy and Patent Protection in a Heterogeneous-Industry R&D-Based Growth Model, Journal of Economic Dynamics and Control, 154(C), pp. 1-22.

Iwaisako, T. (2024), Welfare-Maximizing Patent Length in a Dynamic General Equilibrium Model, Oxford Economic Papers (in press).

Iwaisako, T. and Futagami, K. (2003), Patent Policy in an Endogenous Growth, Journal of Economics, 78(3), pp. 239-258.

Iwaisako, T. and Futagami, K. (2013), Patent Protection, Capital Accumulation, and Economic Growth, Economic Theory, 52(2), pp. 631-668.

Jones, C. I. (1995), R&D-Based Models of Economic Growth, Journal of Political Economy, 103(4), pp. 759-784.

Jones, C. I. and Williams, J. C. (1998), Measuring the Social Return to R&D, Quarterly Journal of Economics, 113(4), pp. 1119-1135.

Jones, C. I. and Williams, J. C. (2000), Too Much of a Good Thing? The Economics of Investment in R&D, Journal of Economic Growth, 5(1), pp. 65-85.

Judd, K. L. (1985), On the Performance of Patents, Econometrica, 53(3), pp. 567-585.

Kamien, M. I. and Schwartz, N. L. (1991), Dynamic Optimization: The Calculus of Variations and Optimal Control in Economics and Management, 2nd Edition, Amsterdam: North-Holland.

Keely, L. C. (2000), Using Patents in Growth Models, Economics of Innovation and New Technology, 10(6), pp. 449-492.

Lerner, J. (2002), 150 Years of Patent Protection, American Economic Review, 92(2), pp. 221-225.

Lerner, J. (2009), The Empirical Impact of Intellectual Property Rights on Innovation: Puzzles and Clues, American Economic Review, 99(2), pp. 343-348.

Li, C. W. (2001), On the Policy Implications of Endogenous Technological Progress, Economic Journal, 471(111), pp. C164-C179.

Lin, H. C. (2015), Creative Destruction and Optimal Patent Life in a Variety-Expanding Growth Model, Southern Economic Journal, 81(3), pp. 803-828.

Lin, H. C. and Shampine, L. F. (2018), R&D-based Calibrated Growth Models with Finite-Length Patents: A Novel Relaxation Algorithm for Solving an Autonomous FDE System of Mixed Type, Computational Economics, 51(1), pp. 123-158.

Matsuyama, K. (1999), Growing Through Cycles, Econometrica, 67(2), pp. 335-348.

Matsuyama, K. (2001), Growing through Cycles in an Infinitely Lived Agent Economy, Journal of Economic Theory, 100(2), pp. 220-234.

Michel, P. and Nyssen, J. (1998), On Knowledge Diffusion, Patents Lifetime and Innovation Based Endogenous Growth, Annals of Economics and Statistics, 49/50, pp. 77-103.

Naghavi, A. and Prarolo, G. (2018), Harmonisation and Globalisation of Intellectual Property Culture, The World Economy, 41(7), pp. 1847-1866.

Neves, P. C., Afonso, O., Silva, D., and Sochirca, E. (2021), The Link between Intellectual Property Rights, Innovation, and Growth: A Meta-Analysis, Economic Modelling, 97(C), pp. 196-209.

Noda, H. (2012), R&D-Based Models of Economic Growth Reconsidered, Information: An International Interdisciplinary Journal, 15(2), pp. 517-536.

Noda, H. and Kano, S. (2021), Environmental Economic Modeling of Sustainable Growth and Consumption in a Zero-emission Society, Journal of Cleaner Production, 299, Article 126691, pp. 1-13.

O'Donoghue, T. and Zweimrmuller, J. (2004), Patents in a Model of Endogenous Growth, Journal of Economic Growth, 9(1), pp. 81-123.

Pan, S., Zhang, M., and Zou, H-F. (2018), Status Preference and the Effects of Patent Protection: Theory and Evidence, Macroeconomic Dynamics, 22(4), pp. 837-863.

Park, W. G. (2008), International Patent Protection: 1960-2005, Research Policy, 37(4), pp. 761-766.

Qian, T. (2007), Do National Patent Laws Stimulate Domestic Innovation in a Global Patenting Environment? A Cross-Country Analysis of Pharmaceutical Patent Protection, 1978-2002, Review of Economics and Statistics, 89(3), pp. 436-453.

Qian, T. (2018), A Note on the Effect of Patents in Endogenous Growth Models, Applied Economics Letters, 25(3), pp. 158-161.

Rivera-Batiz, L. A. and Romer, P. M. (1991), Economic Integration and Endogenous Growth, Quarterly Journal of Economics, 106(2), pp. 531-555.

Romer, P. M. (1990), Endogenous Technological Change, Journal of Political Economy, 98(5), pp. S71-S102.

Segerstrom, P. S., Anant, T. C. A., and Dinopoulos, E. (1990), A Schumpeterian Model of the Product Life Cycle, American Economic Review, 80(5), pp. 1077-1091.

Tabata, K. (2021), Patent Protection and Public Capital Accumulation, International Tax and Public Finance, 28(1), pp. 154-190.

Thompson, M. A. and Rushing, F. W. (1999), An Empirical Analysis of the Impact of Patent Protection on Economic Growth: An Extension, Journal of Economic Development, 24(1), pp. 67-76.

Yang, Y. (2021), Welfare Effects of Patent Protection in a Growth Model with R&D and Capital Accumulation,'' {\it Macroeconomic Dynamics, 25(2), pp. 579-602.

Zhang, M., Zhu, X., and Liu, R. (2024), Patent Length and Innovation: Novel Evidence from China, Technological Forecasting and Social Change, 198(C), pp. 1-13.