Research estimates that while services account for just 20 percent of gross exports worldwide, the share more than doubles to 41 percent when considering value-added exports. Furthermore, as a common measure of innovative activity, patent applications filed by the residents of emerging economies at their national offices grew by In , for the second consecutive year, Huawei Technologies of China was the top Patent Cooperation Treaty applicant, with 3, applications published. IP represents the main value component of many trade transactions.
Flows of knowledge and technology lie at the center of new networks driving production and innovation, notably with regard to global value chains GVCs and global innovation networks GINs.
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GINs represent how companies transfer intangibles and immaterial assets between countries. The rise of GVCs and GINs reflects how technology and globalization have allowed businesses to change how they structure and manage their design, production, marketing, customer support, and other processes in order to optimize their competitiveness and innovation. Companies in these and other sectors are establishing new interdisciplinary and cross-sectoral arrangements with suppliers, customers, universities, and government institutions.
Indicative of GINs is the rise of international co-inventions. The number of international co-inventions wherein patents are filed in multiple countries under the Patent Cooperation Treaty has increased from fewer than 2, in to 12, in Given the global nature of these networks, multinational corporations play a key role in driving this type of international innovation, although they are not the sole driver. While GVCs and GINs represent relatively new constructs, there is early evidence they will be central to future deliberations around trade and innovation policy.
World Bank modeling shows a strong and positive correlation between bilateral trade and co-invention, suggesting interdependence between GVCs and GINs at the country level.
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Furthermore, in contrast to previous research, the results indicate co-invention is more likely the larger the technological gap between trade partners, as less-innovative countries purposely set up links with stronger partners in order to access knowledge. Intellectual property rights arrangements are well recognized, going back to the Middle Ages, as enabling innovators to earn the returns necessary to continue to innovate and promote the availability of leading-edge technologies.
Nobel laureate economist Douglas North, one of the foremost scholars of economic history, argues that the introduction of intellectual property rights had one of the most profound impacts on spurring economic growth in human history.
IPRs Strengthen Trade, FDI, and Technology Transfer
North points out that average global economic growth rates for about one and a half millennia prior to the Industrial Revolution were essentially zero. Eighteenth-century elites in England had practically the same per capita income as their counterparts in third-century Rome.
Robust intellectual property rights spur innovative activity by increasing the appropriability of the returns to innovation, enabling innovators to capture enough of the benefits of their own innovative activity to justify taking considerable risks. By raising the private rate of return closer to the social rate of return, intellectual property rights address the knowledge-asset incentive problem, allowing inventors to realize economic gain from their inventions, thereby catalyzing investment in knowledge creation.
If innovators know that most of the benefits from their innovations would go to others without compensation, they would be much less likely and capable of engaging in future innovations. In addition, as they capture a larger portion of the benefits of their innovative activity, innovating companies obtain the resources to pursue the next generation of innovative activities. The evidence shows that strong intellectual property rights protections are vitally important for both developed and developing countries alike.
But to have the greatest impact on economic growth, IPR reforms must occur concomitantly with other positive complements, particularly ones regarding inputs for innovative and productive processes and the ability to conduct business. These include policies that influence the macro-environment for firms as well as the availability of resources e. Strengthening IPR protection has been shown to correlate with increased trade. Cavazos Cepeda et al. Academic research also signals a strong correlation between IPR and technology transfer.
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Lippoldt showed that IPR strengthening in countries—particularly with respect to patents—is associated with increased technology transfer via trade and investment. For example, a United Nations Conference on Trade and Development UNCTAD study found that direct investment in new technology areas such as computer software, semiconductors, and biotechnology is supported by stronger intellectual property rights policy regimes.
Studies have also shown how the benefits of intellectual property extend to developing countries. Diwan and Rodrik demonstrated that stronger patent rights in developing countries give enterprises from developed countries a greater incentive to research and introduce technologies appropriate to developing countries.
Branstetter and Saggi showed that strengthened IPR protection not only improves the investment climate in the implementing countries, but also leads to increased FDI in the country producing the original innovation.
As northern firms shift their production to southern affiliates, this FDI accelerates southern industrial development, creating a cyclical feedback mechanism that also benefits the North. Another study by Liao and Wong, which focused on firm-level analysis, highlights the inter-relationship of IPR reform in developed and developing countries. Intellectual property rights power innovation. IPR reforms also introduce strong incentives for domestic innovation. Sherwood, using case studies from 18 developing countries, concluded that poor provision of intellectual property rights deters local innovation and risk-taking.
Related research finds that trade in technology—through channels including imports, foreign direct investment, and technology licensing—improves the quality of developing-country innovation by increasing the pool of ideas and efficiency of innovation by encouraging the division of innovative labor and specialization.
Many opponents of robust IPR rights view them as antithetical to the interests of developing countries in terms of access to medicines or the provision of national health care services. Yet the reality is that stronger IPR rights in developing nations actually unleash the power of developing-country innovators to contribute to solving health challenges both in their own nations and across the global economy.
First, opponents of IP fail to recognize that intellectual property rights matter for health care innovation in emerging economies. Second, opponents of IP tend to ignore broader systemic issues that contribute to poor health care outcomes in developing countries. While cost is a central factor for policymakers in all countries, given resource scarcity, these trade-offs are not unique to health. The greater the resource scarcity, the greater the need for innovation. One of the biggest challenges policymakers and innovators in developing countries confront again and again is scarcity—in access to trained professionals, in transportation, and in other infrastructure.
For example, reports estimate that as many as 1 billion people lack access to essential health care because of a shortage of trained health professionals.
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For instance, Cameroon has fewer than 50 cardiologists supporting a population of over 23 million citizens. For instance, in , researchers at the University of Utrecht in the Netherlands found that, on average, essential medicines are available in public-sector facilities in developing countries only 40 percent of the time. Stronger IP rights create an environment wherein entrepreneurs can innovate to meet health challenges in their own nations, the benefits thereof spilling over to benefit the entire international community.
Academic research has also found that stronger IPR protections support exports from developing countries and faster growth rates of certain industries. Yang and Kuo argue that stronger IPR protection improves the export performance of firms benefitting from technology transfer. And in their research, Cavazos Cepeda et al. They also found a significant association between copyrights and export turnover.
In cross-country studies, researchers have found that stronger patent rights are associated with faster company growth in IP-intensive industries such as pharmaceuticals. In fact, during the early s, a one-standard-deviation increase in patent rights was associated with an increase in firm growth of 0. Nations that have not implemented—or do not enforce—robust intellectual property rights protections end up harming their economic development in at least three principle ways. First, they deter future innovative activity.
Third, in countries with weak IP protections, firms are forced to invest undue amounts of resources in protection rather than invention. For instance, the lack of effective protection for intellectual property rights in China has limited the introduction of advanced technology and innovation investments by foreign companies, thereby reducing potential benefits to local innovation capacity. Some countries not on the global technological frontier have used a strategy of intellectual property theft as part of attempts to catch up. To be sure, while researchers such as Grossman and Helpman have found that intellectual property theft can indeed help countries in the short run, they also found that intellectual property theft stifles incentives to embark on home-grown technology development, thus hurting countries and making IP theft a very poor strategy in the long run.
Nevertheless, some developing nations persist in believing that having weak IP protections enables them to acquire valuable IP for a few high-tech exporting industries that can drive their economic growth. Indeed, about 80 percent of productivity growth comes from organizations improving their own productivity, and only about 20 percent comes from more-productive organizations replacing less-productive ones. As such, instituting a weak IP regime in order to boost a few innovation-based industries runs the risk of ignoring the real engine of economic growth for developing countries: across-the-board productivity growth.
As noted, robust intellectual property rights spur innovative activity by increasing the appropriability of the returns from innovation. Moreover, as they capture a larger portion of the benefits of their innovative activity, innovating companies obtain the resources to invest in the next generation of innovative activities. Rather, innovation is the product not only of market incentives for innovators enabled by IP protection , but also of other incentives, rules, and policies that collectively comprise complex national innovation systems.
These include policies related not only to IP but also to scientific research, technology commercialization, investments in information and communications technology, education and skills development, taxes, trade, government procurement, competition, and regulatory policies.
Moreover, in an interconnected world, innovations in one country get applied in virtually all nations. For example, if an innovator in South Korea comes up with much better battery technology, the entire world benefits. These countries seek prosperity by imposing protectionist, trade-distorting policies that tip market scales to expand domestic technology production, including by purposely weakening intellectual property rules and enforcement, compulsorily forcing companies to transfer the rights to their intellectual property or technology, or through the outright theft of intellectual property.
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At the heart of many IPR opponents and innovation mercantilist country strategies is the discriminatory treatment of IP held locally versus by foreign firms. Countries using these strategies target foreign IP as part of an industrial strategy that seeks to help domestic firms acquire or imitate foreign technologies in order to allow them to move toward the technological frontier without paying for technology or paying below market value for it.
In other words, such countries want strong IP rules to apply only to other nations.
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