Asymmetric Intellectual Property Rights Protection and North-South Welfare

Abstract

In this paper we show that standard conclusions of the dynamic literature on intellectual property rights (IPR) protection are not robust to incorporating reasonable features of the economic environment. We construct a bi-dimensional model of dynamic endogenous product innovation and international trade that relaxes the standard presumption that goods in different regions must be perfect substitutes. We find that it is often in the South's interest to maintain the North's standards of IPR protection just as it is often in the North's interest to protect its innovating sector by an import embargo on IPR-offending goods from abroad. We decompose the dynamic welfare formula to explain these cases as well as identify a paradoxical outcome not yet recognized in the conventional literature where the North gains from weaker IPR enforcement in the South. Key features include the ability of lower Southern IPR protection to spur innovation of Northern goods and to make available greater resources for Northern production of current consumption goods. These new results do not rely on obscure or unusual features of the economic landscape. Rather, we argue that by focusing on a monodimensional set goods, conventional models obtained results in context, such as the conclusion that the non-innovating South always benefits from weaker IPR protection, that are misleading in general.

JEL Classification: F13, F31, O32, O34