kanwar presentation

Does intellectual property protection spur technological change?: 

Does intellectual property protection spur technological change? Sunil Kanwar and Robert Evenson

Slide2: 

A distinctive characteristic of modern economic growth has been the significant role played by technological change. Of the diverse factors motivating technological change, increasing attention has been focussed on the role of intellectual property protection.

Slide3: 

That the inventor be given protection for his invention was a principle recognized as early as the fifteenth century, when the very first patents were granted by the city state of Venice. This is not to imply, however, that opposition to such protection did not also exist right from the early times.

Slide4: 

That the inventor be given protection for his invention was a principle recognized as early as the fifteenth century, when the very first patents were granted by the city state of Venice. This is not to imply, however, that opposition to such protection did not also exist right from the early times.

Slide5: 

This issue has continued to remain controversial into the present times; one of the important reasons for this being the lack of cumulative empirical evidence.Thus, studies of firm behaviour, studies of the intrinsic value of protection, and studies of economy-wide response all provide evidence that is thin and mixed.

Slide6: 

The modern basis of the argument in favour of intellectual property protection stems from the fact that innovations are non-rival, and partially non-excludable goods. Intellectual property protection serves to decrease the degree of non-excludability of innovations by assigning to the inventor the property rights over his innovation for a given period of time. In return, disclosure by the inventor adds to society's fund of knowledge once the property rights lapse.

Slide7: 

While a host of arguments may be adduced for and against the strong(er) protection of intellectual property, neither these arguments nor the empirical evidence available clearly pronounce on the influence of such protection on inventive activity and technological change. For this reason, our paper seeks to analyse this relationship empirically. Our evidence shows unambiguously, that intellectual property protection has a strong positive effect on technological change.

Slide8: 

We represent technological change by research and development investment as a proportion of gross national product (RDI). The strength of protection is captured by the Ginarte-Park index of patent rights. The index incorporates five aspects of patent laws: extent of coverage, membership in international patent agreements, duration of protection, provisions for loss of protection, and enforcement mechanisms.

Slide9: 

Internal funds available for R&D investment, proxied by gross domestic savings as a proportion of GDP, lagged one period (St-1)). Demand-pull factors, represented by the ratio of current per capita GDP to per capita GDP lagged one period (ΔGDPPC). Human capital, proxied by the average number of years of formal schooling of the population aged 15 and over (EDU). Political instability, represented by a 'state failure' dummy (which equals 1 in years exhibiting one or more of several phenomena such as genocides, politicides, revolutionary wars, ethnic wars, and abrupt régime changes towards autocratic rule, and 0 otherwise). The real lending rate of interest (RLR) may be used to reflect the opportunity cost of internal funds, if not the actual cost of borrowed funds used for R&D. And finally, the trade orientation of the economy, captured through the black market exchange rate premium dummy (BMPD). Several control variables are considered.

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Data on all the variables were available for 29 countries for the period 1981-1990. Using five-year averages implies that we have two data points for each country, 1985 (or the average for 1981-5) and 1990 (or the average for 1986-90), for a total of 58 observations. Estimations using this sample constitute 'Exercise 1'.

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If we drop variable RLR from the initial general model, on grounds that earlier work on R&D shows internal funds to be the really significant source of funds for such investment, then our sample size becomes 31 countries (now including Jordan and Pakistan). Estimations using this larger sample constitute 'Exercise 2'.

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Although we have reservations about using literacy rates (LIT) to represent skill levels, doing so expands our sample of countries by another (Nigeria). Estimations based on this expanded sample of 32 countries constitute 'Exercise 3'.

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Finally, in 'Exercise 4' we limit ourselves to the OECD countries in our sample, for which R&D data were available for the longer time span 1981-95.

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A random effects model is preferred (and is supported by Hausman specification tests). All variables are in logs. All variables are stationary.

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Table 1 : Strength of intellectual property protection and R&D investment,1981-90

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Table 2 Exercise 1 - Random effects estimates; Dependent variable:RDI

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Table 3 Exercise 2 - Random effects estimates; Dependent variable: RDI

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Table 4 Exercise 3 - Random effects estimates; Dependent variable: RDI

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Table 5 Exercise 4 - Random effects estimates; Dependent variable: RDI

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Exploring non-linearities where exercises 1a, 2a, 3a, and 4a correspond to exercises 1, 2, 3 and 4 above, respectively; and the figures in parentheses are t-statistics.

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Table 6 Exercise 1b - Random effects estimates; Dependent variable: PRIVRDI

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Table 7 Exercise 2b - Random effects estimates; Dependent variable: PRIVRDI

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Table 8 Exercise 3b - Random effects estimates; Dependent variable: PRIVRDI

Slide24: 

Table 9 Exercise 4b - Random effects estimates; Dependent variable: PRIVRDI

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Conclusion In conclusion, we find evidence that stronger intellectual property protection encourages innovative activity and spurs technological change.