Is trade in electrical and electronic products sensitive to IPR protection? Evidence from China’s exports

ABSTRACT

This article attempts to provide the first empirical evidence on the effect of intellectual property rights (IPRs) on China’s export of electrical and electronic products. It adopts a gravity model for unbalanced panel data of China’s 146 important trading partners over the period of 2002–2012. To eliminate the effects of FDI in determining the linkage between IPR and exports, the panel excludes the destination countries and territories that invest in China. The results reveal that the level of IPR protection in destination countries has a positive impact on China’s flow of exports. Further analysis on data disaggregated by IPR score demonstrates that a higher level of IPR protection in destination countries and territories is positively linked with China’s exports of these items in each of the IPR protection clusters and indicates a strong market power effect by the interplay between R&D expenditure and IPR in the destinations. Finally, both market power and market expansion effects are found to be prevalent in the destinations, as implied by the coefficient of IPR protection disaggregated by income level of China’s export destinations. The results generally resemble those in the literature that describe the linkage between IPR protection and trade flows.

KEYWORDS:

• Intellectual property
• trade
• China
• panel data
• threshold effect

JEL CLASSIFICATION:

• F10
• FF13
• F14

Acknowledgements

The authors are grateful for the valuable comments of two anonymous referees, which improved the quality and presentation of the paper. The authors also acknowledge Robert Shuvro Guda, Animes Tripura and S. M. Kalbin Salema for their excellent research assistance.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Awokuse and Yin (2010) examine the linkage between IPR protection and China’s imports of different product categories, which demonstrates that the level of IPR protection in general has a significant linkage with product-specific exports.

² Hanson defined revealed comparative advantage as the log ratio of a country’s share of world exports of SITC 75 to its share of world exports of all merchandised exports (Hanson 2012).

³ The 2 × 2 × 2 trade model that is due to Helpman and Krugman (1985) and Helpman (1987) comprises two goods (differentiated and homogenous), two factors (capital and labour), and two countries (importer and exporter).

⁴ The bilateral exchange rate is calculated by ER_ij,t = LC_i,t/LC_j,t, where LC is the local currency units per US dollar.

⁵ French Research Centre in International Economics (http://www.cepii.fr).

⁶ The IPR index assesses the protection of intellectual property. In addition to an opinion-based measure of the protection of intellectual property, this index considers protection of two major forms of intellectual property rights (patent protection and copyright piracy) from de jure and de facto perspectives, respectively. World Economic Forum (WEF) collected all items included in the IPR index from various sources; however, all items were rescaled in a harmonized procedure to construct the index (Source: World economic Forum).