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This paper studies the relationship between intellectual property rights (IPRs) and economic growth for a cross-section of countries for the period 1960-1990. The analysis focuses on effects of IPRs on growth using a quantitative index of IPRs. The paper finds that IPRs affect economic growth indirectly by stimulating the accumulation of factor inputs like R&D and physical capital. The positive effects of IPRs on factor accumulation, particularly of R&D capital, are present even when the analysis controls for a more general measure of property rights. (JEL 034, 040)
I. INTRODUCTION
Intellectual property protection has been an international policy concern. Owners of intellectual property face risks of imitation or piracy not only in domestic markets but also in foreign, particularly in less developed, markets. Recent global negotiations have called for higher levels of intellectual property protection and for the harmonization of standards. Advocates of these measures cite potential economic benefits ranging from greater world innovation to greater trade and direct foreign investment flows (see Butler, 1990, for a survey of issues).
This paper gauges the economic benefits of increased intellectual property protection. Specifically, it examines how patent protection affects long-run economic growth. Existing empirical and theoretical works study the importance of innovation and technology to growth, but few have empirically studied the effects of the institutions that motivate innovation and technological change, such as intellectual property laws. Studying the effects of intellectual property rights (IPRs) requires having a quantitative measure of the strength of intellectual property rights in a country. This paper constructs an index of the strength of patent protection in 60 countries and uses it to determine the role of IPRs in economic growth.
The key finding is that IPRs affect economic growth by stimulating the accumulation of factor inputs like research and development capital and physical capital. The institution of IPRs does not have any direct role in explaining international variations in growth. That is, the existence of intellectual property laws does not appear to affect directly the technical effciency of production. Instead, the benefits to growth are from encouraging the research sector to invest and take risk.
This implies that countries not conducting innovative research or conducting a limited amount would enjoy few, if any, of the benefits of intellectual property...