Intellectual Property Protection and the Licensing of Technology to Developing Countries

In this paper we study the influence of stronger intellectual property protection on technology transfer into developing countries via licensing. Using panel data for the post-TRIPs period 1995-2005, we find that stronger protection is associated with increased royalty and license fee payments by developing countries, implying greater technology transfer into these countries. This result is robust to the inclusion of country fixed effects, as well as alternative specifications of the model estimated. The strong overall statistical significance of the protection variable is found to be driven by the sub-index of coverage, which makes eminent sense in view of the substantial increase in the coverage of patentable subject matter by developing countries post- TRIPs. Other factors of importance are scale variables such as per capita income and population, as well as human capital and trade openness of the technology-importing countries. The economic significance of the protection variable also appears to be substantial, with changes in this variable accounting for technology inflows of about US $3.4 billion to US $5.5 billion (base year 2000) in the post-TRIPs sample period. These magnitudes comprise 3.5% to 5.7% of the total value of royalty and license fees over 1995-2005 (at 2000 prices). Overall, our results are noteworthy.