| Abstract: |
This paper develops a North-South product-cycle model with innovation and
foreign direct investment (FDI) to analyze the influences from strengthening
intellectual property rights (IPR) protection. Innovation occurs in the North
while imitation happens in the South. Southern firms can imitate either goods
produced in the North or goods produced by multinationals in the South. We
find that if the target of strengthening IPR protection is Northern-produced
goods, then such a policy change reduces the innovation rate and raises the
North-South relative wage in the long run. However, the effects on the
long-run innovation rate and the North-South relative wage reverse if its
target is Southern-produced goods by multinationals. As for the pattern of
production, strengthening IPR protection raises the long-run extents of FDI
and Southern production imitating goods produced by multinationals while
reducing the long-run extents of Northern production and Southern production
imitating goods produced in the North, regardless of the target of stronger
IPR protection. In addition to examining the long-run effects of strengthening
IPR protection, we also analyze its effects during the transitional dynamics.
The quantitative analysis indicates that the two strengthening-IPR-protection
policies cause welfare losses for both Northern and Southern consumers if we
consider the accumulated effects during the transitional dynamics. |