Does the Presence or Lack of Intellectual Property Right Protection Affect International Trade Flows in Emerging Market Economies? an Exploratory Study

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ABSTRACT

This study provides new evidence regarding the effects of patent protection on international trade in developing countries also known as "emerging market economies ". It employs a gravity model of bilateral trade flows and estimates the effects of increased protection on a cross-section of 69x68 countries. It improves on previous studies in two respects. First, we estimate the gravity model for two different kinds of aggregates: total non-fuel trade and high technology trade. Second, it addresses the problem of zero trade flows between countries by adopting a bivariate distributed probit regression model. Third, to measure the strength of Intellectual Property Rights (IPRs) regimes, we make use of a fine tuned index on national IPRs systems developed by Park and Ginarte (1996). Our results confirm previous findings suggesting a positive link between IPRs protection and trade flows for the non-fuel trade aggregate. However, IPRs are not found to be significant for high technology trade flows.

INTRODUCTION

Intellectual property rights (IPRs) affect international trade flows when knowledge intensive goods move across national boundaries. The importance of IPRs for trade has gained more significance as the share of knowledge-intensive or high technology products in world trade has doubled between 1990 and 2003 from 12% to 24% (UN Comtrade Data Base). At the international level, IPRs have traditionally been governed by several conventions - most prominently the Paris Convention for patents and trademarks and the Berne Convention for copyright -, which are administered by the World Intellectual Property Organization (WIPO). In the 1980s, mounting disputes over IPRs lead to the inclusion of trade-related IPRs on the agenda of the GATT/WTO Uruguay round and the resulting "Trade Related Intellectual Property Rights Agreement, including Trade in Counterfeit Goods" (TRIPs) of 1994 represents the most far-reaching multilateral agreement towards global harmonization of IPRs.

Several studies have attempted to estimate the extent to which IPRs are trade-related. Maskus and Penubarti (1995) use an augmented version of the Helpman-Krugman model of monopolistic competition to estimate the effects of patent protection on international trade flows. Their results indicate that higher levels of protection have a positive impact on bilateral manufacturing imports into both small and large developing economies. These results are confirmed by Primo Braga and Fink (1997) where we estimated a similar model and found the same positive link between patent protection and trade flows.

The purpose of this study is to provides additional evidence regarding the effects of patent protection on the international trade patterns of developing economies. It employs a gravity model of bilateral trade flows and estimates the effects of increased protection on a cross-section of 69x68 countries. The next section presents the methodology. section III describes the empirical results obtained while section IV concludes the paper.

METHODOLOGY

To empirically estimate the effects of increased patent protection on bilateral trade flows we use a conventional gravity model. Gravity model has been applied successfully to explain different types of international flows, such as migration, commuting, recreational traffic, and trade. Typically, they specify that a flow from country z to country y can be explained by supply conditions in country z, by demand conditions in countryy, and by forces either assisting or resisting the flow's movement. Gravity models were developed based on intuitive reasoning rather than economic modeling. Due to their empirical success, there have been numerous attempts to shed some light on the economic underpinnings of the gravity equation. Linneman (1966) showed how standard gravity equation can be derived from a quasi-Walrasian general equilibrium model of export supply and import demand. …