Trade Liberalization, Absorptive Capacity and the Protection of Intellectual Property Rights

27 Pages Posted: 17 May 2013

See all articles by Arghya Ghosh

Arghya Ghosh

UNSW Australia Business School, School of Economics

Jota Ishikawa

Hitotsubashi University-Faculty of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2013

Abstract

We examine how trade liberalization affects South's incentive to protect intellectual property rights (IPR) in a North-South duopoly model where a low-cost North firm competes with a high-cost South firm in the South market. The extent of effective cost difference between North and South depends on South's imitation, which in turn depends on South's IPR protection and absorptive capacity and North firm's location choice and masking effort, all of which are endogenously determined in our model. Even though innovation is exogenous to the model (and hence unaffected by South's IPR policy) we find that strengthening IPR protection in South can improve its welfare. The relationship between trade cost and the degree of IPR protection that maximizes South welfare is non-monotone. South does not have any incentive to protect IPR when trade costs are either zero or prohibitive, while for moderate values of trade cost, South government can strengthen IPR protection, induce FDI and increase South's welfare. In an extension of the model, where North firm can mask its technology, we show that, even when trade costs are zero or prohibitive, strengthening IPR protection can improve South's welfare by deterring the North firm from masking its technology. The relationships between location choice/masking decision and South's investment in absorptive capacity are also explored.

Keywords: intellectual property rights, absorptive capacity, FDI, oligopoly, imitation, masking

JEL Classification: F12, F13, D43

Suggested Citation

Ghosh, Arghya and Ishikawa, Jota, Trade Liberalization, Absorptive Capacity and the Protection of Intellectual Property Rights (May 10, 2013). UNSW Australian School of Business Research Paper No. 2013-11, Available at SSRN: https://ssrn.com/abstract=2264002 or http://dx.doi.org/10.2139/ssrn.2264002

Arghya Ghosh (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Jota Ishikawa

Hitotsubashi University-Faculty of Economics ( email )

2-1 Naka, Kunitachi
Tokyo, Tokyo 186-8601
Japan
+81425808794 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
63
Abstract Views
549
rank
375,564
PlumX Metrics