How Relevant are Intellectual Property Rights? A Directed Technical Change Approach

43 Pages Posted: 24 Sep 2018

See all articles by Oscar Afonso

Oscar Afonso

Universidade do Porto - Faculdade de Economia (FEP)

Manuela Magalhães

Public University of Navarre - Department of Economics

Date Written: July 11, 2018

Abstract

We propose a two country, Innovator and Follower, directed technical change model between tradable and nontradable sectors. The Innovator performs innovative R&D and the Follower adopts the available technological knowledge. Substitutability between sectors, scale effects, international IPRs protection and R&D productivity determine the economic growth and the technological-knowledge bias, which, in turn, affects relative prices and wages. Wages are higher in the Innovator, namely in the nontradable sector under strong substitutability. Technological-knowledge and intra-country wage inequality are biased towards the tradable sector, the effect being reinforced by positive IPRs protection and substitutability. Real exchange rates accommodate the Balassa-Samuelson proposal and increase with positive IPRs protection and substitutability. The effect of IPRs on the steadystate growth rate is ambiguous, depending on the substitutability. Theoretical results are also influenced by labor movements and are confirmed by a calibrated exercise for 11 developed/Innovator countries and 11 developing/Follower countries, and by the empirical evidence.

Keywords: Directed Technical Change, International Trade, Intellectual Property Rights, Scale Effects, Substitutability, Prices, Wages

Suggested Citation

Afonso, Oscar and Magalhães, Manuela, How Relevant are Intellectual Property Rights? A Directed Technical Change Approach (July 11, 2018). Available at SSRN: https://ssrn.com/abstract=3243496 or http://dx.doi.org/10.2139/ssrn.3243496

Oscar Afonso

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

Manuela Magalhães (Contact Author)

Public University of Navarre - Department of Economics ( email )

Campus de Arrosadia
Pamplona, Navarra 31006
Spain

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