The Political Economy of Intellectual Property Piracy: Do the Special 301 Pressures Matter?

This paper studies the impact that the exercise of Section 301 of the US Trade Act 1974 or the so-called Special 301 process has had on the phenomenon of global software piracy. The US authorities use these legal provisions to pressurize countries that they consider to be providing inadequate protection to US intellectual property, and which arguably hurts US producers, investors, and innovators. Opting for a panel vector autoregression framework which allows us to treat software piracy, Special 301 pressure, and intellectual property protection as endogenous, we study the piracy-Special 301 pressure nexus without predicating our analysis on untenable exclusion restrictions. Using data for the period 19942017, we find that piracy rates do not exhibit a statistically significant response to Special 301 pressure for the sample countries as a whole. The orthogonalized impulse response function adds useful detail to this insignificant response, revealing that the initial perturbation in piracy rates due to a change in Special 301 status of a country quickly damps out, and returns to even keel by the third period. The forecast error variance decomposition shows that the share of the change in Special 301 pressure is negligible in the total change in piracy rates, although this magnitude needs to be taken with caution, given that the variance decomposition ignores the contribution of the exogenous variables. Although US 301 pressure is not influential for the sample countries as a whole, the intellectual property protection variable appears to be strongly significant in curbing piracy. Finally, we find that the influence of Special 301 pressure on piracy is significantly stronger for countries with a US trade share exceeding the upper quartile of the distribution of US trade shares for the sample countries. JEL Codes:O3, F5, K42, O57