Trade and intellectual property rights as channels for economic growth

Abstract

This paper investigates two prominent potential drivers of long-run economic growth: a country’s trade regime and its intellectual property rights (IPR) regime, as well as their interaction. We characterize the combination of these policy-driven regimes as a country’s technology development regime. To test the importance of our specification of the technology regime, the paper derives a parsimonious model for testing their impact on the growth of living standards. The empirical analysis is conducted using a panel of 24 developed countries and 78 developing countries spanning 1980–2005. Our estimates highlight the importance of the technology development regime variables in driving the growth of gross domestic product per capita. In particular, the IPR regime stands out for its direct impact on growth and as a channel through which trade interacts to impact growth. The results support the view that a country’s graduating into the ranks of higher income status may require that both IPR and trade regimes, particularly the former, be well developed.

Keywords:

• economic growth
• international trade
• IPR

JEL classification:

• O4
• O32
• O11

Acknowledgments

This paper is supported by the Project of Humanities and Social Sciences in China (10YJA630003, 12YJC630075), and the Project of National Natural Science Foundation of China (71272137). We are grateful to George J. Hall, Jing Ren, Xia Meng, Le Tang, Yongzhi Wang, Xiyao Xiang, and Yijie Cai for helpful comments. We also appreciate the careful reading and suggestions of Belton Fleisher.

Notes

1. Branstetter et al. (2011) measure patent system reform in developing countries along five dimensions: (1) an expansion of the range of goods eligible for patent protection, (2) an expansion of the effective scope of patent protection, (3) an increase in the length of patent protection, (4) an improvement in the enforcement of patent rights, and (5) an improvement in the administration of the patent system. Comparing the two, we argue that by spanning both developed and developing countries, the index of patent rights developed by Ginarte and Park (1997) is more comprehensive and useful for the purpose of cross-country analysis.

2. The IPR index may also exhibit substantial change over time. One of the more notable examples is China, who enacted its patent law in 1984 and subsequently revised it in 1992, 2000, and 2008. These amendments have strengthened China’s IPRs protection dramatically. For more details, see Yueh (2009). In addition, Hu and Jefferson (2009) and Yueh (2009) show that the number of patents surging rapidly in China.

3. Estimates of the International Monetary Fund as reported in http://en.wikipedia.org/wiki/Historical_GDP_of_the_People's_Republic_of_China#China_NBS_figures.

4. Recall that by controlling for the initial level of GDPP, we are testing the impact of the technology regime variables on the growth of GDPP.