Which Countries Protect Intellectual Property? the Case of Software Piracy

Article excerpt

DAVID G. STEEL [*]

Using data on software piracy, we examine how protection of intellectual property varies across countries. Consistent with other studies, we find that intellectual property receives greater protection in developed economies; high-income countries have lower piracy rates. We also find that protection depends on cultural factors. Countries with an individualist culture have lower piracy rates than do countries with a collectivist culture. Piracy rates are also lower in countries that have strong institutions that enforce contracts and protect property from expropriation. These results suggest that national policies toward intellectual property reflect not only economic concerns but also national culture and institutions. (JEL 034, L86)

I. INTRODUCTION

Intellectual property rights are a recurring focus of international negotiation. Developed nations argue that such rights are essential for promoting innovation and economic growth. Many developing nations, on the other hand, argue that intellectual property rights inhibit economic development by restricting use of existing knowledge. A generation of theoretical research has demonstrated that there is truth in both arguments; depending on circumstances, individual countries may reasonably favor different levels of protection for intellectual property. [1]

Surprisingly little is known, however, about how such protection is actually determined. Only a handful of previous studies have analyzed cross-national variation in intellectual property rights. [2] These studies relate patent rights, as formalized in the laws of individual countries, to a range of social and economic variables. The main empirical finding is that developed countries provide stronger patent protection.

In this article, we extend this line of research by examining cross-national variation in piracy of computer software. The Business Software Alliance and the Software Publishers Association [1998] have estimated piracy rates (the ratio of illegally copied units to total units) for business software in more than 70 countries for 1994-97. These rates vary substantially. In some countries, essentially all new software was pirated. In other countries, less than 40% of software was pirated.

What explains these differences? Consistent with previous studies, we find that developed countries provide greater protection for intellectual property than do developing countries. High-income countries tend to have lower piracy rates. This is true both in a simple comparison of piracy rates with per capita income and, to a lesser extent, in regressions that control for other factors. As we discuss below, the causal interpretation of this correlation is not obvious. The correlation is consistent with the hypothesis that intellectual property rights promote economic development. However, it may also reflect reverse causality (e.g., if developing nations offer less protection so that they can use the intellectual property of developed nations) or common causation by other factors.

Many commentators have suggested that culture may also explain differences in piracy rates. Western countries, they argue, have individualist cultures that naturally embrace individual ownership of intellectual property, whereas many non-Western countries have collective cultures that emphasize sharing over individual ownership. As a result, these societies have been reluctant to adopt Western conceptions of intellectual property rights.

To test whether differences in culture lead to differences in intellectual property rights, we relate piracy rates to an index of individualism and collectivism developed by Hofstede [1980, 1983]. We find strong evidence that culture matters. [3] Countries with a tradition of individualism pirate much less than do countries with a tradition of collectivism. This is true both in simple comparisons of piracy rates with individualism and in regressions that control for other factors. …