《INTELLECTUAL PROPERTY RIGHTS AND NORTh-SOUTH TRADE》.pdf

NBER WORKING PAPER SERIES INTELLECTUAL PROPERTY RIGHTS AND NORTh-SOUTH TRADE Judith C. Chin Gene H. Grossman Working Paper No. 2769 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 November 1988 We are grateful to Avinash Dixit, Ron Jones, and Anne Krueger for comments on an earlier draft. Grossman thanks the National Science Foundation and the World Bank for partial financial support. This research is part of NEERs research program in International Studies. None of these organizations is responsible for any of the views expressed herein. NBER Working Paper #2769 November 1988 INTELLECTUAL PROPERTY RIGHTS AND NORTH-SOUTH TRADE ABSTRACT We study the incentive that a government in the South has to protect the intellectual property rights of Northern firms, and the consequences of the decision taken by the South for welfare in the North and for efficiency of the world equilibrium. We conduct our analysia in the context of a com- petition between a single Northern producer and a single Southern producer selling some good to an integrated world market. In this competition, only the Northern firm has the ability to conduct RD in order to lower its prod- uction costs, but the Southern firm can imitate coatleasly if patent protec- tion for proceaa innovationa is not enforced by the government of the South. We find that the interests of the North and the South generally conflict in the matter of protection of intellectual property, with the South bene- fitting from the ability to pirate technology and the North harmed by such actions. A stron