Does Intellectual Property Lead to Economic Growth? Insights from an Improved IP Dataset

Abstract

While policymakers often make bold claims on the positive impact of intellectual property (IP) rights on both developed and developing country economies, the empirical literature is more ambiguous. IP rights have both incentive and inhibitory effects that are difficult to isolate in the abstract and dependent on economic context. To unravel these contradictory effects, this article introduces an index that evaluates the strength of IP protection in 124 developing countries for the years 1995 to 2011. We illustrate the value of this index to economics study and show evidence that is consistent with IP leading to increased growth. Our results are further consistent with two causal pathways highlighted in the literature: that IP leads to greater levels of technology transfer and increased domestic inventive activity. Yet, other aspects of our study fit uneasily with this simple story. We find, for example, evidence suggesting that increased levels of growth lead to greater levels of IP protection, contradictory evidence in the literature linking IP with growth, a lack of evidence that increased levels of IP protection lead to actual use of the IP system and problems with what IP indexes measure. Because of this, we suggest another – and so far undertheorized – explanation of the links between IP and growth: that IP may have few direct effects on growth and that any causality is due to belief rather than actual deployment of IP.

Keywords: Intellectual property, index, international comparison, growth, economic development