Monday, 14 November 2016

Positive Effects of IPRS on Monetary Advancement 3

       In strengthening their IPRS regimes, either unilaterally or through adherence to TRIPS, developing countries hope to attract greater inflows of technology.  There are three interdependent channels through which technology is transferred across borders.  

      These channels are international trade in goods, foreign direct investment (FDI) within multinational enterprises, and contractual licensing of technologies and trademarks to unaffiliated firms, subsidiaries, and joint ventures.  Economic theory finds that technology transfers through each channel depend in part on local protection of IPRS, albeit in complex and subtle ways.[1] 

        It is widely recognized by economists that imports of goods and services could transfer and diffuse technology.  Imports of capital goods and technical inputs could directly reduce production costs and raise productivity.  The extent of this benefit would depend on the technological content of imports, suggesting that close trade linkages with innovative developed economies could engender considerable productivity gains through trade flows.  For example, Coe, Helpman, and Hoffmaister (1997) found that a one-percent increase in imports of machinery and equipment from OECD countries tended to raise total factor productivity in developing countries by around 0.3 percentage points on average.

Thus, an important question is whether IPRS affect such trade flows.  Maskus and Penubarti (1995) pointed out that variable IPRs across countries could influence imports in a number of ways.  The essential tradeoff from strengthening patents would be between a contraction of trade as protected firms exercise stronger market power and an expansion of trade because such firms would experience higher demand for their products. 

Thus, the issue is empirical and it is worthwhile to present key results here.  The second and third columns of results in Table 1report calculations of changes in imports that could be induced by stronger patent rights, updated from a general-equilibrium trade model estimated by Maskus and Penubarti.[2]   The calculations in column 2 are for total manufacturing imports.  These figures apply elasticities of imports with respect to patent rights, computed from an econometric analysis of bilateral 1984 trade data, to 1995 import volumes.  The patent index used was a version of that developed by Rapp and Rozek (1990).  This index was increased in various amounts for different countries, reflecting rough estimates of the extent of commitments in patent laws required by TRIPS.

The anticipated impacts on trade volume depend on the extent of patent revisions, market size, and the degree of the imitation threat that would be relaxed by adherence to TRIPS.  Estimated effects on trade range from small impacts in the United States and Switzerland, which are not required to undertake much legal revision, to substantial increases in imports in China, Thailand, Indonesia, and Mexico, which must adopt stronger rights.[3]  In the case of Mexico, it updated its IPRS regime in an accelerated fashion because of commitments made under NAFTA.  The result here suggests that a substantial component of its increase in manufacturing imports in the 1990s may be attributed, other things equal, to stronger patent protection.  It is interesting that many of the largest predicted impacts are in nations with strong imitation capacities, such as Argentina and Brazil.  In contrast, India and Bangladesh would experience relatively weak, though positive, trade impacts.[4]

[1] See Maskus (1998b).
[2] Table 1 was developed in Maskus (2000b).
[3] China has largely met TRIPS requirements in its legislation in anticipation of joining the WTO. 
[4] Smith (1999) found a similar outcome.

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