Intellectual Property Rights Adoption in Developing Countries

This paper studies the incentives that developing countries have to enforce intellectual properties rights (IPR). On the one hand, free-riding on rich countries technology reduces the investment cost in R&D. On the other hand, it yields apotential indirect cost: a firm that violates IPR cannot legally export in a country that enforces them. IPR act like a barrier to entry of the advanced economy markets. Moreover free-riders cannot prevent other to copy their own innovation. The analysis, which distinguishes between large and small developing countries, predicts that small ones should be willing to respect IPR if they want to export and access advanced economies markets, while large emerging countries, such as China and India, will be more reluctant to do so as their huge domestic markets develop. Global welfare is higher under the full protection regime if the developing country does not innovate. It is higher under a partial regime if both countries have access to similar R&D technology and the developing country market is large enough.