IPRs, Economic
Development & Modeling
9th
Keith E. Maskus
Annual Conference on Global
Economic Analysis
15-17 June 2006
Policy Environment
Multilateral harmonization efforts
- TRIPS at WTO (minimum standards in
patents, copyrights, trademarks, plant
variety rights, trade secrets, enforcement)
- WIPO treaties
 Regional trade agreements and “TRIPS
Plus” IPR standards
 Expanding rights in US and EU
 New rights in developing countries?

Some Historical Perspective

IPRs reform tends to follow market needs
- U.S. patent and copyright history
- Japanese post-war patent system
- Korean and Taiwanese IPR development

Statistically IPR laws vary across countries
and over time as economies develop.
PATENT*
Figure 1: Relationship Between Patent Rights
and Per-capita GNP (pre-TRIPS)
6
5.5
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
US
CA
IS
FR SW SZ
HK
AS
GE
BE
NZ
IR
JA
AT
DE
NT
FI
IT
UK
SR
UG
KE ZM
BN SL
BF MW TO
BA
ML
ZA
IN PA
ET
4
5
6
SA
ZI
KO
NI
MA
PI DR JM JO
CM
HU
CR
EGMT
PO
YU
PN
UR AR
ESTN
GH
E
C
GU
MO
ME
LI
BR SY
TU
CH
ID
TH
COPG
PE
BO
7
Ln(INCOME)
8
SI
NO
GRSP
VE
OM
9
10
Some implications
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Optimal protection is not the same in all
countries.
Interests in IP protection go up among domestic
businesses as incomes rise and technical abilities
expand:
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Taiwan and Korea in IT and electronics patents.
India (films) and Jamaica (music) in copyrights.
Argentina in plant variety rights.
TRIPS (and TRIPS-Plus) standards are excessive
for poor countries.
Likelihood of strong enforcement in poor
countries is weak in short run.
Objectives of a balanced system of
IPRs
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Ex-post market power to stimulate ex-ante
investment in innovation;
Commercialization of new goods;
Publication and diffusion of new information;
Support markets for trading technology and
information;
Consumer guarantees of product origin;
Facilitate complex multi-actor transactions in
knowledge goods.
Potential gains for developing
countries
Promote technical change, both internal
innovation and imported technology;
 Broader domestic and foreign markets;
 Greater consumer certainty;
 More cultural goods created;
 Higher value added in branded goods;
 Commercialization of traditional
knowledge;
 More products developed for DC markets.

Potential costs for developing
countries
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Administrative and enforcement costs;
Support market power in presence of weak
competition;
Weaker bargaining positions in technology
agreements and potential licensing abuses;
Block follow-on innovation and restrict imitative
competition;
Raise costs of inputs, medicines, agricultural
technologies;
Restrict fair-use access to educational, scientific,
and cultural materials (eg databases);
Quasi-permanent shift in terms of trade; rents
shifted abroad.
Evidence remains scarce in
developing countries
Studies tend to use aggregate data (need
more micro surveys);
 Most IPR reforms are recent or ongoing
(TRIPS);
 IPRs are only one factor in technical
change and competition processes;
 IPRs (and other regulations) interrelate
with trade policy and other reforms;
 Significant causality problems in
econometric analysis.

Patent reforms and local invention

Weak prospects for promoting local
invention from stronger patents:
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Lerner’s historical study;
Branstetter’s work on Japan;
Declining patent registrations by Mexican
companies post-reforms.
Rise in Korea’s patenting after lag.
Main impacts may be on ITT
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Inward technology transactions seem to be
improved by reforms in patents and trade
secrets.
 International trade flows;
 Sensitivity of FDI and its composition;
 Licensing and externalization;
 Markets for technology services;
 No evidence (or negative) for poorest
countries.
Complementarity between trade-FDI liberalization
and IPRs reform in industrializing economies.
Spillovers can be significant.
Policies to complement IPRs in
encouraging innovation and ITT
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Build human capital and improve ability to absorb
technology;
International openness and competition on
domestic markets;
Tax advantages or subsidies in commercial R&D
programs (learning issue);
Effective national innovation systems

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Public R&D capacity;
Improve information infrastructure
Policies to manage problems with
IPRs: limitations on scope
Patent standards: eligibility, prior art
(novelty), inventive step, opposition,
research exemption;
 Exhaustion and parallel imports;
 Competition policy;
 Education and technology policy: fair use
in copyrights;
 Health policy
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Price controls and compulsory licenses;
Access to generic essential medicines.
A crude summary
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IPRs matter little for poorest countries and needs
(priorities) are broader.
IPRs can be pro-innovation and pro-competitive
in middle-income countries if structured flexibly.
Experimentation with IPRs standards in
developing countries may be important.
Attitudes toward TRIPS in DCs

Considerable dissatisfaction among
developing-country governments:
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Weak link to market access;
Limited success in ITT;
Recognition of need for broader reforms;
Concerns in agriculture, medicines, science
and education.
Implementation and enforcement lag
behind.
 May need a moratorium on global
standards setting (WIPO, TRIPS Plus).
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What are emerging IPRs issues?
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Whether the TRIPS waiver on generic imports of
drugs can be made to work;
Whether new or modified forms of IPRs should be
used to protect traditional knowledge and genetic
resources;
Whether prior informed consent and disclosure of
sources are required in patent applications for
genetic resources;
Whether special protection for geographical
indications should extend beyond wines and
spirits;
How to encourage more R&D in areas of concern
for developing countries.
Importance of considering IPRs in
computational framework
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Clear policy importance for issues of core-periphery
economics, growth, etc.
What is “better”: rigorous or flexible IP reform?
Critical to know if IPRs reforms are offsets or complements
for trade liberalization.
Need better integration of IPRs static and dynamic theory
with computational modeling.
Need to apply clear thinking to representation of what IPRs
are and how they operate.
Sectoral international models (agriculture, pharmaceuticals,
software) may be helpful start.
Inter-sectoral spillover effects from IPRs liberalization have
not been modeled.
Questions of regional versus multilateral harmonization are
important but not studied.
IPRS and computational analysis:
conceptual problems
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IPRs are broad regulations with no obvious “price
wedge” equivalents.
Ideas and knowledge are public goods: appropriate
conception of knowledge capital?
Patents, trademarks, copyrights operate in different
ways and have sectoral biases.
Economic valuation of IPRs (rents) depends on market
circumstances and policies.
“IP goods” are inherently subject to static and dynamic
IRTS.
IPRs trade off static monopoly distortions for dynamic
innovation gains: parameterization and initial conditions
would matter.
Representation must consider impacts of IPRs on
innovation, diffusion (imitation), transactions costs.
IPRs would interact with trade policy, tax policy, etc.
Some relevant computational literature
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Static, partial equilibrium studies:
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Many on pharmaceutical pricing.
Multi-sectoral analysis of Lebanon (Maskus 2000).
Econometric-computational analysis of static rent
transfers from TRIPS (McCalman JIE 2001).
Growth model with endogenous new intermediate
varieties raises productivity from trade
liberalization (Rutherford-Tarr JIE 2002) but IPRs
not considered.
Simulation of N-S quality ladders model with
imitation and learning finds stronger S IPRs can
raise growth and welfare in both N and S, even
more with S trade liberalization (ConnollyValderrama AER P&P 2005).
Modeling elements: 1
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Preferences for new goods: quality and variety;
Conceptualize knowledge capital and incentives
to trade it;
Innovation and imitation costs and elasticities
with respect to IPRs;
Careful sectoral modeling of use of IPRs;
Parameterization of, eg, patents:
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Duration and scope of protection;
Raises imitation costs or requires higher licensing fees;
Reduces transactions costs in ITT;
Could raise or reduce innovation incentives in general
equilibrium, depending on strength of market power.
Modeling elements: 2

Market structure, pre- and post-reform.
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Monopolistic competition likely to be OK for most IPRprotected goods.
Monopoly may be significant in some sectors (pharma,
software).
Who gets rents and are profits repatriated?
Linkages to trade liberalization: impact of more
foreign varieties.
Exports of new goods.
Feedback to induced FDI.
Intertemporal payments balance.
An ambitious agenda
Relevant parameters will be hard to find.
 Model selection will require science and
judgment.
 If anyone wants to work in this area, let
me know: maskus@colorado.edu.
