Measurement of innovation, productivity and growth

Macroeconomic issues and policies
• IPRs and Economic Growth
• Trade-Related Aspects of Intellectual Property
• Intellectual Property Rights, Exhaustion, and
Parallel Imports
• Piracy and Counterfeit
• R&D in the Global Economy
• International Migration of Skilled Labor
Ultimately would like to know impact of IPRs on
economic growth and the welfare of society
– This is a difficult question, but gathering evidence on this may
increase chances of ‘getting policies right’
– Note theoretical arguments not conclusive - can have models
with positive or negative outcomes (Chapter 9)
Different types of evidence can be gathered:
– Cross-country regression evidence (this chapter)
– Firm-level analysis (Chapters 5 – 7)
– Historical evidence (some examples in this chapter)
– Policy-type experiments (analysis of US patent surge,
Chapter 11)
– Survey evidence on agent’s perceptions (some discussion
in Chapter 3)
IPRs and economic growth
• Complex set of relationships (see Figure 12.1, on next
slide, and further diagram on slide after that)
• IPRs can affect investment, trade, FDI, and R&D
• These ‘proximate factors’ can in turn affect a country’s
rate of growth
• Evidence from study by Park and Ginarte (1997) using
cross-section data for 60 countries supports this
indirect role of IPRs on growth by enhancing
investment and R&D
• Further summaries of evidence are in Allred and Park
(2007) and Rogers (2009), see Additional References
Figure 12.1
Impacts of patenting
Nature of patenting
- numbers
- routes
- technologies
- costs
- duration
Main agents
- SMEs
- large firms
- amount
- composition
- research
- links with
- research
- legislation
Complex relationship between IPRs
and growth
• In order to benefit from strong IPRs a country needs to have a
range of factors conducive to growth
• Countries at different stages of development benefit in
different ways
• Falvey et al. (2006) found that having strong IPRs benefits
both the richest and the poorest nations, but not the middleincome countries
• Positive effects are due to increased FDI and trade
• Negative effects arise from inability to imitate and adopt
technology freely
• A further indication from historical studies is that the strength
of IPRs may affect the nature of innovation in a country rather
than the level of innovation
Trade-Related Aspects of
Intellectual Property (TRIPS)
• TRIPS agreement 1996 - membership of the World Trade
Organisation (WTO) was made conditional on signing it
• TRIPS agreement established minimum standards of IPR
protection in all WTO member countries
• Developing countries were given time to make the transition, but
grace periods generally expired within a few years of such
countries joining the WTO
• China and India have both become members of WTO/TRIPS
• Differential impacts of TRIPS – immediate effect (expected) was
that rich countries gained more revenues from licensing their
technology and exporting high-tech products
• Poorest countries (esp. Africa) suffered most, because of higher
prices for protected products and technologies
TRIPS, FDI and technology transfer
• FDI is sensitive to the IPR regime as transnational corporations
(TNCs) fear to invest where no IPRs (Maskus, 2000)
• Can argue that technology transfer is enhanced due to FDI as
these firms bring modernising technology and domestic
enterprise can learn from them
• But technology transfer can only occur if country has the
ability to absorb it – needs education and entrepreneurial
talent to do this
• Any new domestic firms will of course be paying higher
licence fees for their new technology or higher import prices
for imported capital goods that are protected
• Even so, before the IPR regime, no licences would have been
Contentious and
enforcement aspects of TRIPS
• TRIPS allows for some flexibility in how countries design and
operate IPRs
• One key issue concerns supply of pharmaceuticals
• How can poor country improve access to patented but
essential medicines for its population (e.g. for AIDS)?
• One route is to use ‘compulsory licensing’ which means the
government intervenes to confer licence to produce patented
drug – obviously not popular with rich countries!
• Another route is to encourage price discrimination by the rich
country producer, but this can run into problems if buyers in
poor country can arbitrage by re-exporting (see next slide)
• Even if IPR regime exists many countries do not have the
resources to enforce their own rules
Intellectual Property Rights,
Exhaustion, and Parallel Imports
• Exhaustion means that, once a product with IP protection has been
sold, the IP rights attached to it are exhausted and no longer offer
any means of control to its producer
• Product can be re-sold by the buyer without the permission of the
owner(s) of the IPRs contained in the product
• Example of international exhaustion – a patented product is sold in
the US; this item can be resold to a buyer in Japan and is thus
imported into Japan
• This leads to parallel imports – sales from US producer and onward
sales from US buyer can both reach Japan
• Result is producer cannot separate his international markets, even
if he wants to do so in order to charge different prices
• At present WTO & TRIPS allows each country to decide if it does, or
does not, want to apply international exhaustion
Piracy and Counterfeiting
Piracy refers to large-scale infringement of copyright, particularly for
• One area of interest is the estimates of revenue losses by such
agencies as the International Federation of the Phonographic
Industries (IFPI) – and specifically whether these estimates are
too high - see Png (2007)
• Another issue is what country-specific factors affect the rate of
piracy - see Goel and Nelson (2009)
Counterfeit products are those that imitate trademarked products in
terms of design and packaging
• Deceptive counterfeits are assumed to be the real thing and this
can be dangerous, for example if drugs, or spare parts
• Non-deceptive counterfeits may be less harmful, but original
manufacturers can still be faced with loss of status for brand
R&D in the Global Economy
• Are R&D spillovers global?
– Evidence demonstrates spillovers between rich countries
– Absorptive capacity is enhanced by trade and by presence of
highly educated populations
• The globalization of the innovation process
– Since 1950s/60s the emergence of trans-national corporations
(TNCs) has led to spreading of R&D facilities across rich
– UNCTAD (2005) study contains a mass of information and
background to this and also shows new trends:
• Globalisation of R&D to China and India:
– China: rising R&D in Beijing, Shanghai, Guangzhou
– India: rising R&D concentration around Bangalore
(See details in Box 12.1)
International migration of skilled
• Two way international flows of workers accompany the
geographical clustering of innovation
• Skilled personnel from innovative regions travel abroad,
taking their tacit knowledge for which employers elsewhere
are willing to pay them high wages
• Innovative regions attract inward migration of high skilled
workers who want to learn the latest techniques and
• Each side will complain about their ‘brain drain’ problem
• Benefits can be the establishment of new firms and new trade
links, as migrants often retain links with former countries
• Example – Silicon Valley in California has high population of
‘non-resident Indians’ who have set up companies in both the
US and India
Questions for discussion
1. Why might strong IPRs hinder economic development?
2. Classify the potential effects of TRIPS by a) income level of
country b) mechanism of effects (e.g. FDI)
3. What is the difference between deceptive and non-deceptive
counterfeit goods? Does the distinction matter for policy?
4. Conduct some research on the importance of piracy and
counterfeit. What is the extent of lost sales to major companies
in the US?
5. What forces are driving the globalization of R&D? What effects
will it have on the countries involved?
6. Can the ‘brain drain’ of skilled labour from poorer to richer
countries ever be a good thing?
IPRs and growth:
Falvey, R., N. Foster and D. Greenaway (2006), 'Intellectual property
rights and innovation in developing countries', Review of
Development Economics, 10(4), 700-19.
Park, W. and J. Ginarte (1997), 'Intellectual property rights and
economic growth', Contemporary Economic Policy, XV(July), 5161.
TRIPS Agreement and Globalisation of R&D:
Lall, S. and M. Albaladejo (2002), ‘Indicators of the relative
importance of IPRs in developing countries’, , Queen Elizabeth
House Working Paper, QEHWPS85, Oxford.
Maskus, K. (2000), Intellectual Property Rights in the Global
Economy, Washington: Institute for International Economics.
UNCTAD (2005), World Investment Report, New York and Geneva,
United Nations.
Additional References
IPRs and growth:
Allred and Park (2007) “Patent rights and innovative activity:
evidence from national and firm-level data”, Journal of
International Business Studies, 38: 6, 878-900
Rogers, M. (2009), “The Incidence and Significance of Patenting”,
available online at:
Png, I. (2007) “On the Reliability of Piracy Statistics”, (Google this
title for most recent publication source).
Goel, R. K. and M. Nelson (2009) “Determinants of software piracy:
economics, institutions and technology”, Journal of Technology
Transfer, 34:637–658