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Abstract:
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This paper provides an empirical analysis of the effects of patent protection on innovative
activity. It provides evidence from both an output perspective of innovation (namely patent
applications) and an input perspective (namely research and development).
In order to implement the empirical analyses, the paper updates an index of patent rights to year
2000 and provides an index of enforcement effectiveness (in practice). Using both firm-level
and national level panel data, the paper finds that the relationship between patent protection and
innovation typically is U-shaped (or inverse U-shaped), holding other factors constant. The idea
is that patent protection can both stimulate as well as deter innovation, depending on
circumstances. For poorer economies dependent on imitative and adaptive research, patent
protection tends to raise the cost of innovation and thereby reduce the rate of innovation. For
richer economies, where patent strength is already fairly high, a further strengthening of patent
rights may enhance market power to the extent that incentives to introduce new technologies are
reduced. For other situations, stronger patent regimes can encourage domestic innovation and
attract foreign innovation. |