Intellectual Property Rights Induced Trade

A positive relationship between a country’s strength of Intellectual Property Rights (IPRs) and the volume of imports of patent-sensitive goods has been empirically demonstrated. We provide a theoretical explanation of this link. Strengthening IPRs in a given economy generates a reallocation of R&D resources (in the form of skilled labor) out of the imitative activity and into the innovative activity and the production of consumption goods. Foreign patent owners perceive this reallocation of resources as a reduction in the imitation risk arising from the economy undertaking the change. This fall on the risk of imitation is translated as an increase in the expected value of that market. In average, a higher fraction of foreign innovators decide to incur in the fixed cost of exporting after the change has taken place. This mechanism does not rely on technological assumptions about the innovative capabilities of any country, but rather on the interaction between endowments of R&D resources and national institutions related to IPRs. A calibrated model of this economy predicts an increase in skilled capital remunerations in the North. In the South, the remuneration of exporting innovators increases, while that of imitators and skilled workers in the Final sector decreases. The total number of skilled labor engaged in innovation in the world falls after the change, leading to a decrease in the rate of growth of the world.