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Gravity for cross‐border licensing and the impact of deep trade agreements: Theory and evidence

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  • Naoto Jinji
  • Yukiko Sawada
  • Xingyuan Zhang
  • Shoji Haruna

Abstract

We examine whether deep regional trade agreements facilitate cross‐border licensing. A micro‐founded gravity equation for each supply mode is derived from a model in which heterogeneous firms choose to supply their goods to foreign markets through export, foreign direct investment or licensing. We present several comparative statics results regarding the effects of changes in the fixed costs of serving the destination country, the freeness of trade, and the strength of intellectual property rights protection on bilateral flows of licensing revenues. We then empirically test our theoretical predictions using data on the cross‐border flows of royalties and licence fees for 49 countries in the period 1995–2012. In addition to variables that capture the impact of shallow and deep regional trade agreements, we construct dummy variables that represent subcategories of IP rights‐related provisions. Consistent with our theoretical predictions, we find that improved access to the destination market through a deep regional trade agreement and stronger IP rights protection through a regional trade agreement with legally enforceable IP rights and technology‐related provisions increase bilateral flows of licensing revenues. Among IP rights‐related provisions, the accession to or ratification of existing international IP agreements and the protection of trademarks, patents, or industrial designs are important for facilitating cross‐border licensing. Gravité de l'octroi de licences transnationales et répercussion des accords commerciaux étendus : théorie et données probantes. Nous examinons si les accords commerciaux régionaux (ACR) étendus facilitent l'octroi de licences transnationales. Une équation de gravité microfondée pour chaque mode d'approvisionnement est tirée d'un modèle où des entreprises hétérogènes choisissent de fournir leurs biens sur des marchés étrangers par l'exportation, l'investissement direct étranger ou l'octroi de licences. Nous présentons plusieurs résultats statistiques comparatifs concernant les effets des changements sur les coûts fixes pour servir le pays de destination, la liberté du commerce et la solidité des droits de propriété intellectuelle (DPI) sur les flux bilatéraux des recettes provenant de l'octroi de licences. Ensuite, nous testons empiriquement nos prévisions théoriques à l'aide de données sur les flux transfrontaliers de droits d'auteur et de droits de licences dans 49 pays au cours de la période 1995–2012. En plus des variables qui capturent l'incidence des ACR superficiels et étendus, nous construisons des variables fictives qui représentent des sous‐catégories de dispositions liées aux DPI. Conformément à nos prévisions théoriques, nous constatons qu'un accès amélioré au marché de destination grâce à un ACR étendu, et une meilleure protection des DPI au moyen d'un ACR comprenant des dispositions exécutoires sur les DPI et la technologie augmente les flux bilatéraux des recettes provenant de l'octroi de licences. Parmi les dispositions liées aux DPI, l'adhésion à des accords internationaux existants en matière de propriété intellectuelle ou leur ratification, et la protection des marques de commerce, des brevets ou des procédés industriels sont importants pour faciliter l'octroi de licences transnationales.

Suggested Citation

  • Naoto Jinji & Yukiko Sawada & Xingyuan Zhang & Shoji Haruna, 2024. "Gravity for cross‐border licensing and the impact of deep trade agreements: Theory and evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(3), pages 836-869, August.
    • Handle: RePEc:wly:canjec:v:57:y:2024:i:3:p:836-869
    DOI: 10.1111/caje.12731
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