Working Paper: CEPR ID: DP3127
Authors: Ai Ting Goh; Jacques Olivier
Abstract: This Paper is concerned with the interaction between trade policies and the protection of Intellectual Property Rights (IPRs). In particular, it investigates, within the framework of a general equilibrium model with endogenous growth, the welfare implications of an international agreement on one or both policy instruments. High tariffs and low patent protection both allow agents of an individual country to consume more respectively, through rent extraction redistributed by lump-sum transfers, and lower mark-up. Both high tariffs and low patent protection reduce the incentives for firms to do R&D, and, hence, growth. The main insight concerning optimal policies are first, that the two policy instruments are substitutes and second, that they are affected by the same Prisoner's Dilemma problem. As a consequence, an agreement in both policy instruments is needed to achieve any positive welfare gains, which supports the long standing claim of policy makers from developed countries that protection of IPRs should be included in multilateral trade agreements.
Keywords: Intellectual Property Rights; Multilateral Trade Agreements; Trade Policy
JEL Codes: F13; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high tariffs (F19) | low patent protection (L17) |
| low patent protection (L17) | high tariffs (F19) |
| high tariffs and low patent protection (F13) | welfare implications (I30) |
| high tariffs and low patent protection (F13) | reduced incentives for R&D (O39) |
| reduced incentives for R&D (O39) | negatively impacting growth (F69) |
| lack of cooperation on IPRs (O34) | barriers to further trade liberalization (F13) |
| weak IPRs protection (O34) | barrier to free trade (F13) |
| high tariffs and low patent protection (F13) | consumption through rent extraction and lower markups (D16) |
| optimal policies (C61) | maximum patent protection and free trade (F13) |
| high tariffs and low patent protection (F13) | prisoners dilemma scenario (C72) |