Empirics and theoretical models prove. Protecting foreign IP is key to domestic innovation. The card’s about minimum standards!
Gmeiner ’21 [Robert and Michael Gmeiner; PhD in Economics from Florida State University, Scholar at the Sunwater institute; Assistant Professor of Economics at the London School of Economics and Political Science, PhD in Economics from Northwestern University; International Review of Law and Economics, “Encouraging domestic innovation by protecting foreign intellectual property,” Vol. 67] nikhil
Respect for domestic intellectual property intuitively is an incentive for domestic innovative activity. If a country chooses not to respect foreign intellectual property, foreign innovators are harmed. In this paper, we address the relationship between respect of foreign intellectual property, as well as domestic, and technological innovation. Using primitive microeconomic assumptions, and the fact that intellectual property rights make demand curves steeper by restricting availability of substitutes, we demonstrate that a country will be more innovative if it respects both domestic and foreign intellectual property. Respect for foreign intellectual property is thus not only best for global innovation, but it yields domestic advantages as well in terms of technological advances and competitive advantage.
Our theoretical conclusion has strong empirical support. The World Economic Forum’s Global Competitiveness Index includes countries for which objective data on innovation and research are sparse. These are the countries that tend not to respect intellectual property very well, in contrast to developed countries that are wealthy, innovative, and have good intellectual property right protection. Using the Global Competitiveness Index, we demonstrate that countries that protect foreigners’ intellectual property as well as their own have more technologically sophisticated production processes and are more globally competitive with unique products; these countries also have more triadic patents. Intuitively, foreign respect of domestic intellectual property is also strongly linked to innovation, something our theoretical model also showed.
The econometric specifications we employ exploit different dimensions of variation - cross-sectional, time, or both, each with a different implication. Controlling for time and letting the cross-sectional dimension vary produces the greatest explanatory power and significance. Because unobserved economic and political institutions affect the results, it is clear that a country needs not only to adopt a strong intellectual property rights regime to succeed in innovative efforts, but it needs a broad economic structure conducive to innovation and trade that includes intellectual property rights. In conclusion, intellectual property rights for both citizens and foreigners are conducive to domestic innovation and competitive advantage. It is in each country’s best interest to protect the intellectual property of its own citizens as well as foreigners.