IPRS AND INNOVATION

Presentation of Robert E. Evenson
Federal Trade Commission Discussion - February 20, 2002
Economic Perspectives on Intellectual Property, Competition and Innovation

Study 1 (Kanwar and Evenson, 2001)

This study examines the relationship between the strength of Intellectual Property Rights (IP) systems and R & D investment. The study was based on data from OECH developed market economies and developing countries with functioning IP systems. This study concludes that after controlling for other factors, stronger IP systems are associated with higher R & D intensities ® & D expenditure related to Gross Domestic Product).

Study 2 (Evenson, 2001)

This study assesses the relationship between the recognition of IP rights of foreigh IP owners and the productivity of domestic R & D programs (where productivity is measured in terms of domestic inventions patented per unit as domestic R & D spending). The study utilized international data from a set of countries similar to the countries included in Study 1. The estimates indicated that the recognition of foreign IP rights (measured as the number of patents granted to foreigners or as the payments of royalties to foreign IP holders) did raise the productivity of domestic R & D.

Implications

These two studies address the nature of international technology markets, where technology rights are purchased and sold in international markets. IP rights are important to international technology markets. They not only induce more domestic R & D, but by encouraging the recognition of the IP rights of foreigners, they enable domestic scientists and engineers engaged in R & D to have "disclosure" related access to an experience with the technology produced by foreign scientists and engineers. This is one of the mechanisms leading to improved domestic R & D productivity.

The economic consequences of a well-functioning international technology market is economic convergence for countries engaged in the market. Economic convergence among OECD developed market economies has been very strong. The OECD economies with lowest per capita FDP in 1960 have enjoyed the most rapid growth in FDP per capita in subsequent years.

Unfortunately, the international technology market does not extend to very many developing countries. Most developing countries are hostile to IP rights because of a market asymmetry in the number of technology buyers and sellers. The OECD countries have both buyers and sellers. Developing countries are predominantly buyers of technology. Their domestic R & D is generally direct to adaptive inventions which have value in domestic market but often have little value in "upstream" developing country markets. This produces a "buyers perspective" that leads to weak IP rights because these are seen as forcing commitments to recognize (and pay for) the IP rights of foreign suppliers of technology.

Thus, the international technology markets do not function well for most developing countries. A few very successful countries have managed to participate in the market with exceptional growth result (this includes the largest developing economies, China, India, Brazil and Indonesia). But most developing countries do not have the institutions (IP systems and related legal systems) or the investments in science and technology manpower to affectively participate in the international technology market.