Research Shows Little Relationship Between Stricter IP Laws And Innovation Or Economic Growth

Studies

from the that's-just-not-how-it-works dept

We’ve argued for years that intellectual property laws have little, if any, connection to innovation and economic growth. We’ve seen so much research on this that, at this point, it’s hardly even an open question. And yet… politicians and the press (and beneficiaries of stricter IP law) always seem to insist that there’s a clear, undeniable and strong positive connection between stricter IP laws or enforcement and economic growth and innovation. Unfortunately there are no legitimate studies that seem to support that argument. Mike Palmedo recently put together a presentation highlighting some of the research which demonstrates the lack of a connection between such policies and economic growth or innovation. Here’s a quick summary:

UK Commission on Intellectual Property Rights. Integrating Intellectual Property Rights and Development Policy. 2002. (Link)

“…strong IP rights alone provide neither the necessary nor sufficient incentives for firms to invest in particular countries… The evidence that foreign investment is positively associated with IP protection in most developing countries is lacking.”

Robert L. Ostergard., Jr. “Policy Beyond Assumptions: Intellectual Property Rights and Economic Growth.” Chapter 2 of The Development Dilemma: The Political Economy of Intellectual Property Rights in the International System.  LFB Scholarly Publishing, New York. 2003

“…no consistent evidence emerged to show that IPR contributed significantly to economic growth cross-nationally.  Furthermore, when the nations are split into developed and developing countries, results to suggest otherwise did not emerge.”

Carsten Fink and Keith Maskus. “Why We Study Intellectual Property and What We Have Learned.” Chapter one of Intellectual Property and Development: Lessons from Economic Research. 2005. (Link)

“Existing research suggests that countries that strengthen their IPR are unlikely to experience a sudden boost in inflows of FDI.  At the same time, the empirical evidence does point to a positive role for IPRs in stimulating formal technology transfer.”

“Developing countries should carefully assess whether the economic benefits of such rules outweigh their costs. They also need to take into account the costs of administering and enforcing a reformed IPR system”

“We still know relatively little about the way technology diffuses internationally.”

Keith Mascus. “Incorporating a Globalized Intellectual Property Rights Regime Into an Economic Development Strategy.”  Ch. 15 of Intellectual Property, Growth and Trade. (ed. Mascus). Elsevier.  2008.

“Middle income countries must strike a complicated balance between promoting domestic learning and diffusion, through limited IP protection, and gaining greater access to international technologies through a strong regime… it makes little sense for these nations to adopt the strongly protectionist IP standards that exist in the U.S., the EU and other developed economies.  Rather, they should take advantage of the remaining policy space provided by the TRIPS Agreement.”

“It is questionable whether the poorest countries should devote significant development resources to legal reforms and enforcement of IPR.”

Kamal Saggi. “Intellectual Property Rights and International Technology Transfer via Trade and Foreign Direct Investment. Ch. 13 of Intellectual Property, Growth and Trade. (ed. Mascus). Elsevier.  2008.

“Overall, it is fair to say that the existing empirical evidence regarding the overall technology-transfer impacts of increased IPR protection in developing countries is inconclusive at this stage.  What is not yet clear is whether sufficient information flows will be induced to procure significant dynamic gains in those countries through more learning and local innovation.”

“Developing countries need not only to obtain foreign technologies but also to learn how to use them to their fullest potential.  In this context, it is useful to make a distinction between the initial introduction of a technology into a country and its subsequent diffusion within the domestic economy.”

 

Alexander Koff, Laura Baughman, Joseph Francois and Christine McDaniel. “Study on the Economic Impact of ‘TRIPS-Plus’ Free Trade Agreements.”  International Intellectual Property Institute and the U.S. Patent and Trademark Office. August 2011.

• TRIPS-Plus IPRs viewed as “important, but not essential” for attracting investment. Many other factors matter (taxes, human capital, clustering, etc).
• Many countries had recently changed laws to comply with TRIPS, so changes for FTAs had a smaller effect on investment.
• The way in which the obligations were implemented was important.   It is not wise to simply impose one legal framework on top of another.  Implementation of FTAs requires taking specific nations’ legal systems into account.

That same post includes additional data from a research paper that Palmedo himself is working on, looking specifically at the impact on foreign direct investment (FDI) in countries that sign free trade agreements (FTAs) with the US, which require stricter IP laws. Palmedo looked at three countries, Guatemala, Peru and Nicaragua, that had signed such FTAs with the US, and studied how much foreign direct investment they got before and after the new laws went in place. He also looked at how much change there was in technology licensing. The results, again, highlighted how such rules appeared to have little direct impact on these items — even if they’re often cited as the key reasons for signing these agreements. As Palmedo concludes:

In general, the results show that stronger IPRs were not correlated with changes in FDI. They were correlated with changes in licensing, but not always in the direction one would expect. The data does not show that stronger IPRs required by FTAs drove significant amounts of tech transfer in these three countries.

There are plenty more studies along these lines. At what point do we stop taking it on faith that expanding intellectual property laws is automatically good for the economy and innovation and start looking at what actually works?

Filed Under: economic growth, fta, guatemala, ipr, mike palmedo, nicaragua, peru, uk