Stage-dependent intellectual property rights

Abstract

Inspired by the Chinese experience, we develop a Schumpeterian growth model of distance to frontier in which economic growth in the developing country is driven by domestic innovation as well as imitation and transfer of foreign technologies through foreign direct investment. We show that optimal intellectual property rights (IPR) protection is stage-dependent. At an early stage of development, the country implements weak IPR protection to facilitate imitation. At a later stage of development, the country implements strong IPR protection to encourage domestic innovation. Therefore, the growth-maximizing and welfare-maximizing levels of patent strength increase as the country evolves towards the world technology frontier, and this dynamic pattern is consistent with the actual evolution of patent strength in China. We are very grateful to the anonymous Referees and Patrick Francois (the Editor) for their insightful comments that have improved the manuscript signi…cantly. We also would like to thank Elias Dinopoulos, Rachel Gri¢ th, Oleksandr Talavera, Fabrizio Zilibotti, and seminar participants at

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