Intellectual Property Protection and Patterns of Trade

The paper provides a simple theoretical model for understanding how the difference in the level of intellectual property rights protection determines trade patterns. In particular, I examine how countries ?levels of patent rights protection affect exports in industries with different degrees of reliance on innovation. In contrast to most models of institutional comparative advantage, which predict that countries with superior institutions specialize in industries that are very dependent on institutions, I show that higher patent rights protection does not necessarily lead to specialization in industries that rely heavily on innovation. There may exist a threshold beyond which occurs a reversal of specialization patterns, a consequence of monopoly power inherent in intellectual property rights protection. I then use the model?s implications to assess empirically whether such predicted patterns hold in cross-country trade data and fi?nd evidence for general patterns of specialization as well as a reversal of such patterns among countries with high levels of patent rights protection.