WTO says yes to strong IP and innovation

This paper presents an assessment of the impact of strong Intellectual Property Rights (IPRs) protection and adoption of Utility Model Laws on export diversification in both developed and developing countries. The study covers 89 developing and developed countries (of which 55 developing countries) over the period 1975 - 2003. Using Lewbel (2012)'s Instrumental Variable approach in a pooled panel setting, we obtained evidence that strong IPRs – notably patents rights - protection and adoption of utility models laws encouraged significantly the diversification of exports in both developed and developing countries. More specifically, the results suggest evidence that the adoption of utility model laws exerts a strong positive effect on developing and developed countries alike. However, the impact of strong IPRs protection in reducing the concentration of their exports baskets appears to be higher in developed countries compared to developing ones. In examining the economic growth effects of IPRs system, many authors (for e.g., Maskus, 2000; CIPR, 2002; Kumar, 2002; Dolfsma, 2006;) argued that developed and developing countries that have achieved substantial growth rates have all fine-tuned their IPRs system to match their development needs, rather than implement a wholesale IPRs policy. In the same line, Kim et al., (2012) have also shown evidence that it is not only the strength of intellectual property rights protection that matters for innovation and growth, but also the type of protection. In other words, these authors have underlined that the availability of legal protection for minor, adaptive inventions should most be useful to firms with low technological capacities and limited resources. Developing countries, when acceding to the WTO often agree to reform their IPRs systems as part of their accession negotiations. As noticed by Adams (2008), the challenge of reforming IPRs systems requires a strategy of maximizing the gains of tightening IPRs protection, while limiting the potentially adverse effects of improved protection to facilitate the access of local entrepreneurs to the fruit of the IPR systems, as it was the case in India and the Republic of Korea. In this respect, the adoption of utility model laws by these countries, in particular the lower income countries would be very helpful in creating incentives for innovation, technological development and 25 thereby export diversification. Such strategy, by acting as a springboard to export diversification, could allow a progressive strengthening of the intellectual property systems in order to establish a viable technological base. At the international level, lower income countries could have the support of both the World Trade Organization (WTO) - given their flexibilities in the TRIPs Agreement and despite the lack of an explicit reference to utility model laws in this Agreement - and the World Intellectual Property Organization (WIPO) conventions, one of which explicitly recognizes the importance of utility models for them. Moreover, WTO and WIPO provide significant technical assistance to these countries. Finally, it is worth highlighting that an important limitation in this study is our incapacity to perform the analysis on the category of Least Developed Countries (LDCs) because of data constraints. This could be a future research avenue when data becomes available.