Bilateral intra-industry trade flows and intellectual property rights protection: first empirical evidence

Abstract

This study provides the first empirical evidence on the effects of intellectual property rights (IPRs) protection on bilateral intra-industry trade (IIT) flows. The empirical investigation is based on pooled South African data and takes advantage of the theoretical distinction between horizontal and vertical IIT. A gravity equation of international trade is estimated in the context of fixed and random effects models. The principal findings suggest that IPRs and imitation abilities separately are not important factors in determining IIT flows. However, the interaction between them is important.

Notes

¹ The choice of the years was based on the data viability of IPRs as measured by Ginarte and Park (1997) index.

² For the methodology of disentangling the total intra-industry trade (IIT) into vertical and horizontal intra-industry trade please refer to Kandogan (2003).

³ The potential of an endogeneity between intra-industry trade flows and the measure of IPRs protection may exist because IPRs laws and their enforcement are probably influenced by other factors such as economic development. However, to get rid of the possible endogeneity this study has lagging the IPRs variable such that if the dependent variable is y(t), the IPRs variable is IPRs (t − 5), where t refers to time.

⁴ TRIPs stands for Agreement on Trade-Related Aspects of Intellectual Property Rights and WTO stands for World Trade Organization. The deadline for compliance with the Agreement varies according to the stage of a country's economic development. For instance, some developing countries have until 2016 to fully comply.