Aid for Trade flows, Patent Rights Protection and Total Factor Productivity

This study has examined both the effect of Aid for Trade (AfT) flows on the total factor productivity (TFP) level, and the extent to which this effect depends on countries' strength of protection of patent rights. The analysis has used the fixed effects estimator the Method of Moments Quantile Regression approach over a panel dataset of 59 countries and the period from 2002 to 2019. It has established several findings. AfT flows are instrumental in improving productivity in recipient countries, with the largest effect arising from AfT flows for productive capacities. The positive productivity effect of total AfT flows is larger in countries with higher productivity levels. On average over the full sample, total AfT flows exert a larger positive effect on the TFP level in countries that have face higher trade costs, lower innovative output and weaker patent rights protection. Interestingly, increasing the real per capita research and development (R&D) expenditure and concurrently strengthening patent rights laws (to protect the returns on R&D expenditure) result in a larger positive effect of total AfT flows on productivity. In addition, countries with low productivity levels (i.e., those located in lower quantiles) and that increase R&D expenditure in the context of stronger patent rights laws, experience a positive and significant effect of total AfT flows (in particular AfT for productive capacities) on productivity. The magnitude of this positive effect is larger, the lower the quantile of the TFP distribution in which a country is located. These findings have important policy implications.