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Home page  About CSIS Programs Technology and Public Policy Intellectual Property and Innovation Intellectual Property Protection and Economic Growth
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Intellectual Property Protection and Economic Growth
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John Hillery, CSIS July 2006
The essence of this argument is that intellectual property protection drags down developing economies by:
- Resulting in a loss of jobs
- Driving up prices on goods due to a monopoly created by IP
- Reducing access to technology needed for development
- Requiring developing countries to administer and enforce IP rights
- Compelling companies to pay licenses or royalties on the products that they produce
A) It is argued that stronger intellectual property rights (IPRs) will lower employment in activities related to infringement. However, it should be noted that employees in legitimate firms earn better wages, and skilled workers are likely to be hired by non-infringing enterprises after a period of transition.[1]
B) The effect on prices is real. However, the overall price impact is dependent on the competitiveness of the local market. Moreover, the price effect may be temporary as it creates more incentive for firms to enter the market. For example, in the copyright space in Taiwan, prices have declined since the strengthening of IPR enforcement in the mid-1990s as a result of new competition from emerging local developers. [2]
C) Developing countries have expressed concern that IPRs place more pressure on imitative enterprises from pharmaceuticals to software. However, as IPR strengthens, access to technology via licensing increases, and such access benefits overall development.[3]
D) The costs to comply with TRIPS[4] have been estimated for a number of countries. For example, Bangladesh estimated a one-time cost of $250,000 and annual cost of $1.1 million for judicial work, equipment and enforcement. These costs exclude training.[5] Thus the concern about costs for developing countries is valid. However, it should be noted that countries could offset their costs by collecting patent application fees and receiving assistance from WIPO and the WTO. E) As countries improve their IP protections, they do pay more in royalties and license fees and the US and other developed nations gain the most in terms of rent payments.[6] However, this is zero-sum analysis which does not look at the longer-range economic benefits of participating in the international IP system as a legitimate actor. Stronger IPRs have a positive impact on a nation’s level of exports and increases the probability of investments undertaken by multinational firms.[7] Improvements in IPRs increase a country’s attractiveness for foreign investment by those sectors that rely most heavily on IP rights.[8] Multinational firms have been demonstrated to respond to changes in IPR regimes by significantly increasing technology transfer to reforming countries.[9] Intellectual property rights also affect the innovation rate[10] and innovation affects economic growth and is the key driver in future global economy. Like IPR, the level of innovation is difficult to measure but a number of factors, including R&D spending, human capital stock, and the level of capital goods from developed countries have been demonstrated to relate positively to innovation.[11] Moreover, there is no indication that payments of royalties have hindered the growth of any nation, including such examples as Singapore, Ireland, and South Korea.
Conclusions
One possible restatement of the question might be: Does piracy promote economic growth? Again, the case is not compelling and empirical research fails to support it.[12]
As demonstrated above, the case that intellectual property rights impede growth is weak. However, the specific role of strong IPR in economic development is complex and net outcomes may be dependent on IPRs' interplay with other important factors such as openness and market structures, human capital, and research and development.
When opponents of intellectual property rights cannot demonstrate evidence that such protections truly harm economic development, there is a temptation to fallback on the argument that IPRs have at best an ambiguous effect on economic development. This argument, too, should be resisted and it is the purpose of this CSIS ongoing research project to provide clarity to the significance of IPRs in economic growth and development, as well as policy recommendations that governments can leverage to capitalize on IPRs' value.
[1] Keith E. Maskus, "Intellectual Property Rights and Economic Development," Case Western Reserve Journal of International Law, Vol. 32, 471 www.law.case.edu/student_life/ journals/jil/32-3/maskusarticle.pdf [3] Walter Park and Douglas C. Lippoldt (2004), "International Licensing and the Strengthening of Intellectual Property Rights in Developing Countries," OECD Trade Policy Working Paper, Number 10, OCED publishing. [4] The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), an international treaty administered by the World Trade Organization (WTO), sets down minimum standards for most forms of IP regulation within all member countries of the World Trade Organization. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) treaty in 1994. [7] Keith Maskus and Mohan Penubarti, "How Trade Related are Intellectual Property Rights?" Journal of International Economics, 39, 227-248, 1995. and Edwin Mansfield, "Intellectual Property Protection, Foreign Direct Investment and Technology Transfer," International Finance Corporation, 1994. [8] Beata S. Javorcik, "Foreign Investment, Technology Transfer, and Protection of Intellectual Property Rights," The World Bank. http://www.wipo.int/documents/en/meetings/2003/wipo_wto/presentations/ppt/smarzynka.ppt Beata Smarzynska, "The Composition of Foreign Direct Investment and the Protection of Intellectual Property Rights," World Bank Policy Research Working Paper, February 2002. www-wds.worldbank.org/.../WDSP/IB/2002/03/08/000094946_02022604025132/Rendered/PDF/multi0page.pdf [9] Lee Branstetter, Raymond Fishman and C. Fritz Foley, "Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from US Firm-Level Data," NBER Working Paper 11516 July 2005. weblog.ipcentral.info/IPRs%20&%20Tech%20Trans.pdf [10] Patricia H. Schneider, "International Trade, Economic Growth and Intellectual Property Rights: A Panel Data Study of Developed and Developing Countries," July 2004 www.mtholyoke.edu/~pschneid/ images/Schneider_JDEJuly2004.pdf [12] See for a recent example, Craig Depken and Trisha L. Bezmen, "The Impact of Software Piracy on Economic Development," Working Paper, March 2006 www.uta.edu/depken/P/piracyhdi.pdf - |
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