Innovating like China: a theory of stage-dependent intellectual property rights

Chu, Angus C. and Cozzi, Guido and Galli, Silvia (2011): Innovating like China: a theory of stage-dependent intellectual property rights.

Abstract

Inspired by the Chinese experience, we develop a Schumpeterian growth model of distance to frontier in which economic growth in the developing country is driven by domestic innovation as well as imitation and transfer of foreign technologies through foreign direct investment. We show that optimal IPR protection is stage-dependent. At an early stage of development, the country implements weak IPR protection to facilitate imitation. At a later stage of development, the country implements strong IPR protection to encourage domestic innovation. Finally, we provide empirical evidence that supports this theoretical finding.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic growth; stage-dependent intellectual property rights
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O34 - Intellectual Property and Intellectual Capital; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Acemoglu, D., Aghion, P., and Zilibotti, F., 2003. Vertical integration and distance to frontier. Journal of the European Economic Association 1, 630-638.

Acemoglu, D., Aghion, P., and Zilibotti, F., 2006. Distance to frontier, selection, and economic growth. Journal of the European Economic Association 4, 37-74.

Aghion, P., Howitt, P., and Mayer-Foulkes, D., 2005. The effect of financial development on convergence: Theory and evidence. Quarterly Journal of Economics 120, 173-222.

Aitken, B., and Harrison, A., 1999. Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review 89, 605-618.

Akiyama, T., and Furukawa, T., 2009. Intellectual property rights and appropriability of innovation. Economics Letters 103, 138-141.

Allison, J., and Lin, L., 1999. The evolution of Chinese attitudes toward property rights in invention and discovery. University of Pennsylvania Journal of International Economic Law 20, 735-791.

Baltagi, B., 2001. Econometric Analysis of Panel Data, second edition. John Wiley and Sons, Ltd.

Branstetter, L., Fisman, R., and Foley, C., 2006. Do stronger intellectual property rights increase international technology transfer? Empirical evidence from US firm-level panel data. Quarterly Journal of Economics 121, 321-349.

Chu, A., 2009. Effects of blocking patents on R&D: A quantitative DGE analysis. Journal of Economic Growth 14, 55-78.

Cozzi, G., 2001. Inventing or spying? Implications for growth. Journal of Economic Growth 6, 55-77.

Cozzi, G., and Spinesi, L., 2006. Intellectual appropriability, product differentiation, and growth. Macroeconomic Dynamics 10, 39-55.

Dinopoulos, E., and Segerstrom, P., 2010. Intellectual property rights, multinational firms and economic growth. Journal of Development Economics 92, 13-27.

Furukawa, Y., 2007. The protection of intellectual property rights and endogenous growth: Is stronger always better? Journal of Economic Dynamics and Control 31, 3644-3670.

Furukawa, Y., 2010. Intellectual property protection and innovation: An inverted-U relationship. Economics Letters 109, 99-101.

Futagami, K., and Iwaisako, T., 2007. Dynamic analysis of patent policy in an endogenous growth model. Journal of Economic Theory 132, 306-334.

Ginarte, J., and Park, W., 1997. Determinants of patent rights: A cross-national study. Research Policy 26, 283-301.

Glass, A., and Saggi, K., 2002a. Licensing versus direct investment: Implications for economic growth. Journal of International Economics 56, 131-153.

Glass, A., and Saggi, K., 2002b. Intellectual property rights and foreign direct investment. Journal of International Economics 56, 387-410.

Glass, A., and Wu, X., 2007. Intellectual property rights and quality improvement. Journal of Development Economics 82, 393-415.

Grossman, G., and Helpman, E., 1991. Endogenous product cycles. Economic Journal 101, 1214-1229.

Grossman, G., and Lai, E., 2004. International protection of intellectual property. American Economic Review 94, 1635-1653.

Helpman, E., 1993. Innovation, imitation, and intellectual property rights. Econometrica 61, 1247-1280.

Horii, R., and Iwaisako, T., 2007. Economic growth with imperfect protection of intellectual property rights. Journal of Economics 90, 45-85.

Howitt, P., and Mayer-Foulkes, D., 2005. R&D, implementation and stagnation: A Schumpeterian theory of convergence clubs. Journal of Money, Credit and Banking 37, 147-177.

Hsiao, C., 2003. Analysis of Panel Data, second edition. Cambridge University Press.

Hu, A., and Jefferson, G., 2009. A great wall of patents: What is behind China's recent patent explosion? Journal of Development Economics 90, 57-68.

Iwaisako, T., and Futagami, K., 2003. Patent policy in an endogenous growth model. Journal of Economics 78, 239-258.

Javorcik, B., 2004. The composition of foreign direct investment and protection of intellectual property rights: Evidence from transition economies. European Economic Review 48, 39-62.

Judd, K., 1985. On the performance of patents. Econometrica 53, 567-586.

Kwan, Y., and Lai, E., 2003. Intellectual property rights protection and endogenous economic growth. Journal of Economic Dynamics and Control 27, 853-873.

La Croix, S., and Konan, D., 2002. Intellectual property rights in China: The changing political economy of Chinese-American interests. World Economy 25, 759-788.

Lai, E., 1998. International intellectual property rights protection and the rate of product innovation. Journal of Development Economics 55, 133-153.

Lee, J.-Y., and Mansfield, E., 1996. Intellectual property protection and US foreign direct investment. Review of Economics and Statistics 78, 181-186.

Lerner, J., 2009. The empirical impact of intellectual property rights on innovation: Puzzles and clues. American Economic Review 99, 343--348.

Li, C.-W., 2001. On the polity implications of endogenous technological progress. Economic Journal 111, C164-C179. Nordhaus, W., 1969. Invention, Growth, and Welfare. Cambridge, Mass.: The MIT Press.

O'Donoghue, T., and Zweimuller, J., 2004. Patents in a model of endogenous growth. Journal of Economic Growth 9, 81-123.

Parello, C., 2008. A north-south model of intellectual property rights protection and skill accumulation. Journal of Development Economics 85, 253-281.

Park, W., 2008a. International patent protection: 1960-2005. Research Policy 37, 761-766.

Park, W., 2008b. Intellectual property rights and international innovation. In K. Maskus (ed.) Frontiers of Economics and Globalization, vol. 1, Handbook Series, Elsevier Science.

Qian, Y., 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, 436--453.

Segerstrom, P., 1991. Innovation, imitation, and economic growth. Journal of Political Economy 99, 807-827.

Sepetys, K., and Cox, A., 2009. Intellectual property rights protection in China: Trends in litigation and economic damages. NERA Economic Consulting Working Paper.

Tanaka, H., Iwaisako, T., and Futagami, K., 2007. Dynamic analysis of innovation and international transfer of technology through licensing. Journal of International Economics 73, 189-212.

Wu, H., 2010. Distance to frontier, intellectual property rights, and economic growth. Economics of Innovation and New Technology 19, 165-183.

Yang, G., and Maskus, K., 2001. Intellectual property rights, licensing, and innovation in an endogenous product-cycle model. Journal of International Economics 53, 169-187.

Yang, W., and Yen, Y., 2010. The dragon gets new IP claws: The latest amendments to the Chinese patent law. IPO Articles and Reports.

Zuber, J., 2008. Trade secrets rules, regulation and enforcement in China and the US: A comparative analysis. China Intellectual Property May-June 2008, 51-55.