World Development Vol. 66, pp.

665677, 2015
0305-750X/ 2014 Published by Elsevier Ltd.
www.elsevier.com/locate/worlddev

http://dx.doi.org/10.1016/j.worlddev.2014.08.025

Do Stronger Intellectual Property Rights Increase Innovation?

CASSANDRA MEHLIG SWEET b and DALIBOR SACHA ETEROVIC MAGGIO a,*
a
Universidad Adolfo Ibanez, Santiago, Chile
b
Ponticia Universidad Catolica, Santiago, Chile
Summary. Do stronger intellectual property rights (IPR) increase innovation? Recent decades have seen a global transformation in
IPR standards, underpinned by the theory that stronger IPRs spur increased incentives to innovate. This study tests the impact of ever
more rigorous IPR systems on innovation through an index of economic complexity of 94 countries from 1965 to 2005. Our results
conrm that stronger intellectual property systems engender higher levels of economic complexity. Nevertheless, only countries with
an initial above-average level of development and complexity enjoy this eect.
2014 Published by Elsevier Ltd.
Key words innovation, development, intellectual property rights, economic complexity

1. INTRODUCTION

of negotiations. The resulting change of 157 countries

national patent rules to one minimum standardthrough
the Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS)marked a watershed moment in
the global political and economic regulation of innovation.
In the wake of global IPR changes, scholars have sought to
understand the eects of increasing patent protection on economic development. Studies have worked on the eects of
the new standards on patent applications, investment in
research and development, technology transfer, productivity
growth, and inequality. 1 Yet, evidence about optimal levels
of patent protection remains inconclusive and some scholars
have recently called for research which better estimates the
eects of IPR policy on innovation rates and also structural
models that would enable the evaluation of the eects of
dierent policies in equilibrium growth and welfare
(Acemoglu & Akcigit, 2012, p. 40).
Our study addresses this ongoing debate by working to
unravel the relationship between export sophistication and
increasingly rigorous IPR standards. Our ndings yield two
broad sets of results. Across a world sample, we show that
the higher the intellectual property laws, the more positive
impact they have on a countrys level of innovation, as measured through export sophistication. However, the positive
eect seems to be restricted to countries that start out with
an above average level of development and complexity. For
developing countries, our results show that IPR has at best
a non-signicant eect on economic complexity and most
often has a negative eect. These ndings are in line with the

This study works to address some of the current gaps and

continuing debates in intellectual property rights (IPR) literatures. Our period of interest (19652005) is one of increasing
intellectual property rigor for both industrialized and developing countries. In contrast to previous studies which have used
patent applications, awards, or research and development
(R&D) spending as their primary indicator of innovative
activity, we build on a database of 94 countries over the period
from 1965 to 2005 to examine the eects of IPR changes on a
countrys economic complexity (Hausmann et al., 2013). Our
approach oers a number of novelties in on-going debates
about innovation. First, by focusing on the countrys economic complexity measured through its export sophistication,
we avoid some of the problems with standard innovation
indicators to better capture if more innovative products and
processes are being developed and, importantly, applied across
an economy as a whole. Second we oer insights on the benets and costs of increasingly rigorous standards in developing
economies. Third, we build on a new wave of research which is
working toward unraveling the drivers of economic sophistication and understanding the institutional environments which
foster more value-added production in developing countries
(Zhu & Fu, 2013).
An abundant and expanding body of research has recently
uncovered the importance of export complexity as both a predictor and a driver of future economic development (Anand,
Mishra, & Spatafora, 2012; Hausmann, Hwang, & Rodrik,
2007; Lall, Weiss, & Zhang, 2005). This stream of work has
shown that a mere quantitative increase in exports does not
reect either current or potential for economic development.
It is not how much you export, these scholars argue, but what
you export that matters (Anand et al., 2012; Hausmann et al.,
2007). At the same time that literatures in economic
development and policy have established the critical role that
increasing export sophistication plays as driver of economic
development, the global rules governing the ownership of
technology and its diusionthe regulatory framework
underlying product innovationhave been radically transformed.
Intellectual property rights (IPR) standards, norms, and
institutions were at the forefront of debates on productivity
in the 1980s and 1990s during the WTOs Uruguay Round

* Many generous colleagues and two major funding Grants made this
work possible. The research was a part of the studies undertaken in the
Millennium Nucleus for the Study of Stateness and Democracy in Latin
America, Project N NS100014 where David Altman and Anthony
Pezzola provided important inputs. In addition, the work greatly benetted from the contributions of Francisco Gallego, Jeanne Lefortune, Jose
Tessada, Jim Robinson and the nancial support of the Economic History
and Cliometrics lab funding provided by Conicyt/Programa de Investigacion Asociativa Project N SOC1102. At Emory University, we thank
Cliord Carrubba, Tom Clarke, and Jeery Stanton and the members of
Emory Universitys PIM Colloquium. Additional thanks are also due to
Dani Rodrik, Ricardo Hausmann, and Oeindrila Dube. All the usual
caveats apply. Final revision accepted: August 19, 2014.
665

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WORLD DEVELOPMENT

theory that access to technology and technology transfer are

important drivers of innovation and productive output, especially for developing countries playing a global game of technological catch-up. This research lends urgency to the
importance of tailoring national systems to development
demands and reassessing literatures on intellectual property.
The paper proceeds in the following structure: Section 2
briey reviews the literature on IPR institutions and innovation. Section 3 presents the dataset and econometric model
used in our analysis. Section 4 discusses our results while Section 5 oers conclusions and looks toward future research
pathways.
2. INTELLECTUAL PROPERTY INSTITUTIONS AND
ECONOMIC COMPLEXITY
One of the primary mechanisms in intellectual property systems is the patent. 2 A patent confers a set of monopoly ownership privileges to an inventor for a nite period of time, thus
protecting the inventor from appropriability by other rms at
a signicantly lower cost. The period of protection rewards
inventors for their investment in innovation-producing
activities. In turn, society sacrices immediate access to the
new technology in exchange for the benets conveyed through
the incentive to innovate. This trade-o has been described as
the patent bargain (Jensen, Johnson, Lorenz, & Lundvall,
2007) and it is at the center of research of intellectual property
systems.
An early stream of theoretical work examining this trade-o
attempted to develop a model for optimal patent levels
(Horowitz & Lai, 1996; ODonoghue & Zweimuller, 2004).
One ank of scholars describes the relationship between IPRs
and their benets as comprising an inverted-U curve in which
IPR norms reach a peak point of rigidity from which the
trade-o between the positive aspects of IPR for owners
(higher returns from monopoly rights, more resulting capacity
for R&D) are eclipsed by the negative aspects (reduced diusion, reduced competition, higher transaction costs from
licensing). The inverted U-curve relationship however has
been questioned by researchers who doubt that benecial outcomes taper o (Kanwar & Evenson, 2003) and suggest that
innovation not only increases relative to IPR strength, but that
does so in an ever amplied manner (Kanwar, 2007;
Schneider, 2005). This school of thought predicted that application of the Norths intellectual property standards would be
hugely benecial for the global South and provide an impetus
for bridging the global technological divide (Lai & Qiu, 2003).
A theoretical model developed by Dinopoulos and Segerstrom
(2010) is more buoyant still, positing that higher levels of IPR
protection in the developing world spur multiple gains,
including perpetual increases in the transfer of technology to
the global South, increases in R&D by Southern aliates of
northern-based multinationals and nally both a decrease in
the global wage gap and increase in innovation in industrialized countries. These results are conrmed by evidence that
intra-rm transfer of technology increases, especially for rms
heavily dependent on patent-based technologies (Branstetter,
Fisman, & Foley, 2006). These multinational rms, according
to some researchers, cause positive spillover eects including
spread of knowledge and skills to local workforce (Gorg &
Strobl, 2005; Poole, 2012) and growth of local suppliers
(Smarzynska Javorcik, 2002, 2004). Finally, the standardization
of a reliable set of IPR norms opens markets for technology,
linking innovations and facilitating tacit and formal exchanges
of technological knowledge (Arora, Fosfuri, & Gambardella,
2001; Athreye & Cantwell, 2007).

At the root is the question posed by some scholars: would

the predicted expansion of industrial activity by multinationals in developing countries neutralize the losses incurred by
terminating imitative production in these countries?
Branstetter, Fisman, Foley, and Saggi (2011) review the
behavior of multinational enterprises ex-ante and ex-post
reforms and suggest that the outcomes are favorable. Among
all these predicted benets of expanded and global IPR norms,
the central argument for reforms however was that standard
IPR institutions would drive innovation and bridge the global
technological divide. 3
The TRIPS agreement codied these cheerful IPR views into
global trade law: from 1996 onward all members of the WTO
agreed to implement IPR systems respecting a patent life of
20 years. 4 In the wake of the implementation of TRIPS
norms, many scholars in political economy have worked to
empirically assess their impact. 5 Some researchers have
argued that the agreement has increased innovation
(Abrams, 2009) and facilitated diusion, as inventors are more
apt to share their ideas when their ownership rights are protected (Moser, 2011). However, a contrasting, less sanguine
view of ever-stronger IPRs has gained strength as more studies
examine the dierent eects of the treaty on countries across
varying levels of economic development. McCalman (2001)
has shown how increased IPRs result in wealth transfers from
developing countries to their industrialized counterparts. A
recent study by Hudson and Minea (2013) employs a unied
econometric approach analyzing the impact of IPR through
both initial IPR and per capita GDP. They nd that global
IPR homogeneity is sub-optimal, as the same level of IPR
has a dierent impact on richer countries than poorer ones
(Hudson & Minea, 2013). These works build on a stream of
evidence indicating that dierent intellectual property institutions may be more conducive for both rm learning and the
processes of technological catch-up (Acha, Marsili, &
Nelson, 2004; Bell & Pavitt, 1993). This idea posits that IPR
standards should be development appropriate, and draws
on the notion that innovation is an incremental, cumulative
process requiring access and adaptability of technological
knowledge (Acemoglu, Gancia, & Zilibotti, 2012). Two studies
examining histories of industrialization (Cimoli, Dosi,
Mazzoleni, & Bhaven, 2011; Odagiri, Goto, Sunami, &
Nelson, 2010) show through multiple cases across industrialized and developing countries, that IPRs were not signicant
drivers of technological advancement and that in fact, many
advanced industrial economies achieved their development
under loose IPR frameworks. 6
The actual eectiveness of patents and their dierences
across industries has long been a subject of interest for innovation scholars. Thirty years ago renowned innovation economist Edwin Manseld asked how germane patents truly were
for industries in the generation and commercialization of
new products. Reviewing surveys of 100 US rms across 13
industries, he found that they were only essential for a small
portion of innovations, and only in select few industries
(Manseld, 1986). 7 This nding has lead researchers to question, do rms actually use patents as the preferred mechanism
for guarding secretive information? An interesting discussion
on the overall importance of the global IPR regime and their
potential not only to promote innovation but also to enable
diusion can be found in Archibugi and Filippetti (2013).
Their provocative conclusion is that the overall eect of the
regime has been overestimated, and that eects have been
much ado about nothing. Cohen, Nelson, and Walshs
(2000) work conrms this result, nding that most rms use
other instruments such as trade secrecy, lead time advantages,

DO STRONGER INTELLECTUAL PROPERTY RIGHTS INCREASE INNOVATION?

and complementary manufacturing strategies over patents as a

means for protecting their product innovations. The use of
patents and the eects of their ever-tightening standards
remain contentious and unresolved issues.
(a) Getting a grip on innovation: patents and R&D spending
The majority of studies working to gauge the impact of IPR
institutions on innovation have done so by measuring innovation through one of two proxies: patents granted or disbursements on R&D. Both these data sources present
problems as accurate representations of innovative activity. 8
The rst problem with patents is that innovation is an incremental process, taking place through both tacit and
explicit knowledge accumulation; measures of patents
granted capture only the explicit side of technological innovation (Nelson, 2005). Along these lines, there is important evidence that many countries lack a culture of patenting which
is dominant in the US and other western nations but less prevalent in other societies. This is a particular challenge for
cross-country studies where important changes in a countrys
innovative activity may not be captured by patent applications
or awards (Varsakelis, 2001). In a long-sighted view of IPR
system evolution, Lerner (2002) reviews 60 countries over
150 years and explores the determinants of patent systems.
He nds evidence that intellectual property standards are
highly aected by both levels of economic development and
legal traditions (for example, countries with Common Law
or Napoleonic law traditions). Setting aside concerns about
tacit knowledge or culture, patents oer a number of advantages and have been a popular indicator; they are easily accessible, replicable, and standardized.
Yet recent trends in the use of patents raises another question regarding their ability to serve as an indicator of crossnational levels of innovation. So-called strategic patenting
by rms has resulted in patent thickets, or clusters of patents
contrived for the sole purposes of commercialization. 9 In this
scenario, rms colloquially referred to as patent trolls
acquire and bundle vast collections of patents with the singular aim of extracting licensing fees from rms which may draw
from their patent area (Glass, 2013; Shapiro, 2001). Instead of
serving as markers of innovative advancement, todays patents
have become weapons for rms to harass competitors (Jae
& Lerner, 2004, 2006). Most products currently depend on
multiple technologies and innovations; by some estimates,
one smartphone is aected by 250,000 patents (Masnick,
2012). The proliferation in patenting has been accompanied
by a weakening in patent standards. The result has been an
explosion in patenting activities that are, according to some
scholars, more reective of trends in corporate strategy than
a veritable boom in innovative activities. Finally, in contrast
to the hyper-patenting activities of some rms, another body
of evidence indicates that many rms engaged in high-level
innovative activities are choosing not to patent their inventions due to the cost of both applying for and enforcing patent
rights (Hall, Helmers, Rogers, & Sena, 2013). These combined
trends diminish the reliability of patent applications as an indicator of innovative activity.
Another traditional measurement of innovation is research
and development. In contrast to patents, disbursement on
R&D oers a more micro-level view into rm strategy and
the focus of innovative activities. Yet the eectiveness of
R&D as an indicator of innovation has been increasingly questioned (Kleinknecht, Van Montfort, & Brouwer, 2002). In
short, the same inputs can be used more or less eciently
depending on institutional environment and rm management.

667

Spending on research may serve as a gauge of the process, but

statistics on R&D are weak predictors of real innovative
advances. Firms utilize R&D resources with varying levels of
competence, xed investments in R&D over time are not
accounted for, and the data are skewed toward large rms,
missing much of the innovative investments and advances
achieved by small and medium players. One particularly damning survey on the Netherlands showed that data on R&D only
represented a quarter of total product innovation expenditure
(Brouwer & Kleinknecht, 1997). For researchers interested in
development, an important limitation with R&D surveys is that
the data on poor countries are scattered and inconsistent. As a
recent survey on R&D data collection in developing countries
indicates, we are a long way from having reliable contemporary
data and numerous institutional challenges to creating standard
data collection systems persist (UNESCO, 2010).
(b) Innovation through productive knowledge: the ECI indicator
In light of the limitations encountered in traditional indicators of innovation, we explore the relationship between
increasingly rigid IPR norms and its eects on innovation
through measurement of a countrys export sophistication as
described in the economic complexity index (ECI). The
ECI provides a number of advantages as proxy for a countrys
innovative output, giving us insight into a countrys (a) capacity to generate innovation which is relevant to its productive
structure and (b) ability to apply those innovations (be they
incremental and tacit, or formal and codied). At the center
of the calculation of the ECI index, two concepts characterize
the complexity of an economy: diversity and ubiquity
(Hausmann et al., 2013). Diversity describes the number of
distinct products that a country makes. Larger product diversity reects a greater amount of embedded knowledge and the
ability of a country to apply tacit and explicit bundles of innovation across its productive structure. Ubiquity represents the
number of countries that make a particular product. Since
products that demand large volumes of knowledge are feasible
only in the few places where all the requisite technology and
know-how are available, the more complex the product, the
less ubiquitous it is expected to be. Medical imaging, for
example, is a product exported by a few countries (the United
States and Germany being the leaders) and therefore is a
product that is rare, compared with low-technological products such as lumber, which is exported by dozens of countries.
At the same time, both Germany and the United export a wide
diversity of products. Mapping out the ubiquity and diversity
of a countrys exports allows insights into its ability to push
beyond the naturally endowed factors to recombine and
recreate more competitive products through organizational
innovations. In short, while measurements of patents reveal
how inventors are strategically choosing to protect their legal
rights to inventions and R&D reveals patterns of rm resource
allocation, the ECI shows us if a country is expanding the
frontiers of its production capacity and innovating in a way
that is relevant to its economic development (Hausmann
et al., 2013).
The ECI relies on international trade data, which presents
three constraints. First, it uses the UN COMTRADE database, which includes data on exports, not production. Second,
the data include only goods and not services. Finally, the data
do not include information on non-tradable activities. It is
interesting to note that while ECI oers a view into whether
a country is expanding its productive frontier and eectively
producing and exporting new products, those activities are
strongly correlated to traditional innovation metrics. Figure 1

668

WORLD DEVELOPMENT

illustrates the relationship between ECI and research spending

(as a percentage of GDP), number of researchers (as a percentage of population) and patent applications at the USTD for
the period 19652000. 10
The simple correlation between ECI and research spending
(as a percentage of GDP) is 0.64, the same as the number of
researchers per capita, while the correlation of ECI with the
number of patents reaches 0.81. The ECI allows us to build
on these traditional metrics and is able to capture not just
the tangible innovative outputs (measured by patents) or
inputs (measured by scientists or investment in R&D) but
the intangible inputs and technological innovations exhibited
in the advancement of their product frontier: what countries
make reveals what they know (Hausmann et al. 2013: 22).
Complex economies are able to weave vast quantities of relevant knowledge together, across large networks of people, to
generate a diverse mix of knowledge-intensive products. On
the other hand, simpler economies have a narrow base of productive knowledge and produce fewer products, which require
smaller webs of interaction and lower levels of innovation.
3. DATA AND THE EMPIRICAL MODEL
To measure the strength of the IPR institutions we rely on
the Ginarte and Park (1997) and Park (2008) Intellectual
Property Rights Index (GP Index henceforth). The index of
patent rights was developed for 110 countries for 196590 later
extended to 2005 (broken down into ve year intervals). The
index is the unweighted sum of ve separate scores for:
coverage (inventions that are patentable); membership in
international treaties; duration of protection; enforcement

mechanisms; and restrictions (for example, compulsory licensing in the event that a patented invention is not suciently
exploited). This index was designed to provide an indicator
of the strength of patent protection, not the quality of patent
systems. The ability to generalize across trends in IPR standard opens possibilities for multiple streams of research. Yet
precisely how to measure and compare the strength of intellectual property systems across the globe has been a vexing
issue for researchers interested in analyzing IPR institutions
with a rigorous comparative approach. Initiated in the late
1990s, Ginarte Park Index oered a solution; it simplied
complex systems within a parsimonious analytical framework.
As a result, the Index has prospered. It has become a standard
for evaluating what comprises strong or weak intellectual
property systems, now common currency in innovation literatures. As of this writing, the GP Index (in its original and
extended format) has been cited more than 1,003 times in
diverse and far-reaching studies. Nevertheless, our selection
of the GinartePark Index as a proxy for IPR strength may
cause unease for legal scholars. Those experts deep in the legal
trenches will be privy to the intricate dierences in national
debates, implementation processes, and enforcement of new
IPR systems. They will point to the specic cases, of which
there are many, illustrating that the Index, helpful as it is,
has limitations. Therefore, it is important to review the most
important of these: rst, developing and industrialized countries are prone to sign agreements by which they subsequently
do not abide. While the Index ascribes value to the signing, for
example, of the Paris Convention for the Protection of Industrial Property, this does not indicate a countrys adherence.
Along these lines, the Index does not consider if IPR protocols
are respected, or if, for example, specic issues such as

(a)

(b)

(c)

(d)

Figure 1. (ad) ECI and traditional innovation metrics. Source: Authors calculations. Red line is a linear t. (For interpretation of the references to colour in
this gure legend, the reader is referred to the web version of this article.)

DO STRONGER INTELLECTUAL PROPERTY RIGHTS INCREASE INNOVATION?

compulsory license laws are included in a countrys core patent

statute or buried in the legal code. It does not take into
account if countries actively use compulsory licenses, 11 nor
does it address the question of whether government entities
can be sued for patent infringement or if trade secret rights
systems are in place in the countries it reviews. 12 Even with
these limitations, the GP Index has captivated the research
community and allowed us to trace a general but clear global
shift toward ever more rigorous IPR standards in industrialized and developing countries alike.
Some simple descriptive data allow us to view this movement and its interplay with economic complexity over time.
Figures 2 and 3 illustrate the evolution of the ECI and GP
Index since 1965. In Figure 2, the average of the GP Index
of the countries in the sample, shows a dramatic increase after
the Uruguay round. This is consistent with the global increase
in minimum IPR standards. Additionally, the mass of the distribution of the sample narrows, indicating that most of the
countries in the sample experienced an increase in intellectual
property rights protection. By 2005, countries with no or very
scant IPR regulations (a 0 or 1 on the GP Index) had
disappeared, minimizing the diversity of systems which
prevailed before the treaty.
In Figure 3, the average complexity of the countries in the
sample remains stable while there are important changes in
the dispersion of the ECI. The mass of the distribution (75%
and 25%) becomes increasingly more concentrated around
the center of the distribution while the top performer increases
its level of sophistication over time. On the other hand, lowest
performing countries do not show a clear trend. In a simple
exercise in correlation, Figure 4 illustrates the scatter plot of
Economic Complexity Index (ECI) in the y-axis and
Intellectual Property Index (IPR) in the x-axis. The linear t
shows a positive relation between both variables.
To further study the relationship between intellectual
property and economic complexity, we estimate a set of panel
data models for ECI for consecutive, non-overlapping, 5-year
periods, from 1965 to 2005. Our empirical framework can be
summarized as follows:
ECI i;t ai nt b1 IPRi;t X control
c ei;t
i;t

669

Figure 3. Intellectual property rights over time. Note: Authors calculations.

Figure 4. ECI and IPR. Note: Authors calculations.

where ECIi,t stands for the economic complexity index of

country i for the 5-year period t and IPRi,t is the level of
strength of intellectual property rights institutions for country
i at the beginning of the 5-year period t. The set of control
variables is represented by the vector X of economic, political,

Figure 2. Economic complexity over time. Note: Authors calculations.

and demographic variables. Following the literature on the

subject (Hausmann et al., 2007 and Anand et al., 2012), we
control for other potential determinants of economic complexity including: (1) GDP per capita (GDPCH): The initial
income per capita captures the level of development of the
economy and potential convergence eects. Data on this variable are from the Penn World Table Version 6.2 (PWT). (2)
Human Capital (Lyr_sch): As a proxy for the stock of human
capital in the economy we use the total years of schooling
available in the Barro and Lee (2010) database. (3) Political
institutions (POLITY2): We take into consideration the
institutional quality of the country using the Polity IV index
developed by Marshall and Jaggers (2007). The index ranges
from -10 for autocratic states to 10 for fully democratic
regimes and has been used extensively in the academic literature as a measure of quality of the political system (Rodrik
and Wagziarg, 2004; Papaioannou and Siourounis, 2005 and
Aidt and Eterovic, 2011 among others) (4) Trade openness
(OPENC): Openness to international trade could be associated with higher productivity and economic complexity as
countries that are more open might benet more from technology diusion (Edwards, 1997). (5) Government Size (CG):
Government spending might benet from knowledge productivity through the provision of public goods such as public
schooling, public order, and ecient legal systems. However,

670

WORLD DEVELOPMENT

it is also likely that an excessively large government might

hurt economic complexity due to government ineciencies
(Barro, 1991). (6) Population (POP): This variable accounts for
the possibility of increasing returns to scale in exports productivity. Data on the previous variables are sourced from PWT 6.2.
(7) Country land area (CtryArea): This variable accounts for
the potential availability of natural resources in the economy.
Data on this variable are from the World Bank World Development Indicators.
In all our regressions, we control for country (ai) and time
(nt) eects and include a trend. With the exception of ECI
and IPR, all variables are in logarithms. To estimate Eqn.
(1) we use two alternative econometric techniques. Our rst
approach is to estimate a static model using OLS to study
the long-run relation between intellectual property rights and
economic complexity. The model includes country- and
time-xed eects to reduce the risk of omitted variables bias.
It also implies we are using within variation (i.e., variation in
IPR within a given country over time) to identify the impact
of intellectual property rights on economic complexity.
Since one problem with estimating a dynamic model with
OLS is introducing a dynamic panel bias due to the inclusion
of the lagged dependent variable, our second empirical
approach is to estimate a dynamic panel by using a systemGMM estimator. The Arellano and Bond (1991) GMM estimator exploits all the linear moment restrictions, resting on
the assumption of no serial correlation in the error term in
an equation which contains individual eects, lagged dependent variable, and no strictly exogenous variables. Arellano
and Bover (1995), argue that the main weakness of the original
ArellanoBond estimator is that lagged levels are poor instruments for rst dierences if the variables are close to a random
walk. To solve this problem, they propose to add the original
equation in levels to the system, so the additional instruments

can be brought to increase eciency. This version of the

model, later on fully developed by Blundell and Bond
(1998), is known as System GMM (Roodman, 2009).
Specically, we estimate a two-step robust System GMM
regression using Windmeijers (2005) correction for nite
samples and report tests for autocorrelation, which is applied
to the dierenced residuals in order to purge the unobserved
and perfectly auto correlated residuals.
4. RESULTS
The results of the dierent specications for the OLS model
are presented in Table 1. 13 The broader picture that emerges
from the regression analysis is one where IPR strength is positively related to economic complexity (ECI). This nding is
remarkably robust to all the specications presented. The
magnitude of the eects ranges from 0.234 to 0.082 points in
the ECI index. Taking into consideration that the ECIs
sample mean is 0.129 and its standard deviation is 1.024, the
eect is substantial.
Table 2 presents the results from the dynamic model using
system GMM. The results conrm the existence of a positive
relation between IPR and ECI. Controlling for endogeneity
between IPR and ECI we found a slight reduction in the
magnitude of the eect to the lower bound when using the
static OLS model (between 0.055 and 0.081).
The results presented in Tables 1 and 2 are indicative of the
existence of a positive eect of IPR on economic complexity.
But is the eect of IPR similar across all levels of income
and development? Figure 5 presents a scatter plot between
ECI and IPR. Panel A divides the sample between countries
with GDP per capita below and above mean income while
panel B divides the sample between countries with ECI below

Table 1. Economic complexity (ECI) and intellectual property index (IPP) OLS
Variables

(1)
ECI

(2)
ECI

(3)
ECI

(4)
ECI

(5)
ECI

(6)
ECI

(7)
ECI

(8)
ECI

(9)
ECI

(10)
ECI

(11)
ECIa

0.104***
(0.028)

0.149**
(0.074)
0.090***
(0.028)

0.016
(0.069)
0.116***
(0.029)
0.002**
(0.001)

0.112
(0.072)
0.085***
(0.028)

0.165**
(0.075)
0.082***
(0.027)

0.184**
(0.076)
0.083***
(0.028)

0.149**
(0.075)
0.090***
(0.028)

0.420***
(0.050)
0.125***
(0.026)
0.000
(0.001)
0.018***
(0.007)
0.020
(0.065)
0.005
(0.004)
0.250***
(0.047)
0.148***
(0.038)
Y
N
736
92
0.6809
0.0798

0.120
(0.081)
0.072***
(0.028)
0.001
(0.001)
0.025***
(0.007)
0.190**
(0.091)
0.000
(0.004)
0.141
(0.162)
0.035
(0.103)
Y
Y
736
92
0.9232
0.1134

0.127*
(0.073)
0.077***
(0.027)

lrgdpch
Ipr

0.234***
(0.028)

Openc

0.025***
(0.007)

Cg

0.242***
(0.086)

lyr_sch
polity2

0.000
(0.004)

Lpop

0.006
(0.148)

Lcountryarea
Year FE
Country FE
Observations
Number of id
R-squared
R-squared within

Y
N
775
94
0.4636
0.0231

Y
Y
767
94
0.9167
0.0569

Y
Y
767
94
0.9175
0.0670

Y
Y
767
94
0.9147
0.0612

Y
Y
767
94
0.920
0.0940

Y
Y
758
94
0.918
0.0784

Notes: All regressions include a trend.

a
Stepwise general to specic specication. Robust standard errors in parentheses.
*
Signicant at 10%.
**
Signicant at 5%.
***
Signicant at 1%.

Y
Y
745
94
0.920
0.0703

Y
Y
767
94
0.9175
0.0670

0.024***
(0.007)
0.233***
(0.086)

Y
Y
758
93
0.9200
0.1040

DO STRONGER INTELLECTUAL PROPERTY RIGHTS INCREASE INNOVATION?

671

Table 2. Economic complexity (ECI) and intellectual property index (IPP) system GMM
Variables
L.ECI
lrgdpch
ipr

(1)
ECIa

(2)
ECIa

(3)
ECIb

(4)
ECIb

(5)
ECIc

(6)
ECIc

0.873***
(0.024)
0.036**
(0.017)
0.080***
(0.026)

0.871***
(0.025)
0.036**
(0.017)
0.081***
(0.026)

0.854***
(0.028)
0.090***
(0.026)
0.073***
(0.024)
0.000
(0.000)
0.009***
(0.003)
0.048*
(0.027)
0.000
(0.003)

0.857***
(0.032)
0.087***
(0.032)
0.077***
(0.029)
0.000
(0.000)
0.009***
(0.003)
0.047
(0.032)
0.000
(0.003)

0.851***
(0.039)
0.066**
(0.030)
0.055*
(0.032)
0.001*
(0.001)
0.020***
(0.005)
0.031
(0.055)
0.006
(0.005)

0.857***
(0.041)
0.060*
(0.031)
0.058*
(0.034)
0.001
(0.001)
0.020***
(0.006)
0.033
(0.055)
0.005
(0.005)

1-step
87
0.171
0.001
0.161
686
94

2-step
87
0.171
0.001
0.161
686
94

1-step
107
0.723
0.001
0.290
663
91

2-step
107
0.723
0.001
0.290
663
91

1step
112
0.768
0.001
0.302
663
91

2-step
112
0.768
0.001
0.302
663
91

openc
Cg
lyr_sch
polity2

# of instruments
Hansen test (p-value)
AR 1 test (p-value)
AR 2 test (p-value)
Observations
Number of id

Notes: System-GMM estimations for dynamic panel-data models. Sample period: 19602005.
a
IPP and L.ECI were treated as endogenous. Their lagged values used as instruments in the rst dierence equations and their lagged rst-dierences were
used in the levels equations.
b
IPP, lrgdpch, and L.ECI were treated as endogenous. Their lagged values used as instruments in the rst dierence equations and their lagged rstdierences were used in the levels equations.
c
All variables were treated as endogenous. Their lagged values used as instruments in the rst dierence equations and their lagged rst-dierences were
used in the levels equations. Two-step results using robust standard errors corrected for nite samples (using Winmeijers, 2005, correction). t-Statistics are
in parenthesis. Signicance level at which the null hypothesis is rejected: ***, 1%; **, 5%, and *, 10%.

(a)

(b)

Figure 5. ECI and IPR. Note: Authors calculations. Panel (a) Separated by mean income; panel (b) Separated by mean ECI.

and above mean ECI. 14 The linear ts in both panels are

indicative of a stronger positive relation between ECI and
IPR in countries with above mean income per capita and
above mean ECI. In countries below mean income and below
mean ECI, the positive relation between ECI and IPR
disappears.
To formally investigate the possibility of a discontinuity in
the relation between ECI and IPR, in Table 3 we dissect our
results by dividing the sample using two alternative metrics.
First, we divide the countries into low and high income using
the sample mean per capita income as the cut o (USD 8742).
Second, we divide the sample into low and high economic
complexity using the sample mean ECI as the cut o. Then,
we run a set of static and dynamic models. A number of

interesting results emerge. 15 First, the impact of intellectual

property rights on economic complexity remains positive
and highly signicant for above mean income countries
and for above mean ECI countries. Second, the positive
relationship between IPR and ECI breaks down for below
mean income countries and for below mean ECI countries.
For these countries one can say that IPR has at best a nonsignicant eect on economic complexity and might even have
a negative eect on these countries ECI.
Our results are intuitive. Richer and more sophisticated
countries enjoy positive returns in terms of economic
complexity from increasing levels of intellectual property
rights. Poorer and less sophisticated countries hurt their
possibilities of increasing complexity by increasing IPR. These

672

WORLD DEVELOPMENT
Table 3. Economic complexity (ECI) and intellectual property index (IPP) sample divided by income and level of complexity

Method

VARIABLES

(18)
LI
OLS
ECI

(19)
HI
OLS
ECI

L.ECI
lrgdpch
ipr
Openc
Cg
lyr_sch
polity2
# of Instruments
Hansen test (p-value)
AR 1 test (p-value)
AR 2 test (p-value)
Observations
R-squared
Number of id

0.120
(0.119)
0.015
(0.044)
0.002
(0.002)
0.032***
(0.010)
0.431***
(0.139)
0.003
(0.006)

0.259*
(0.132)
0.085**
(0.039)
0.000
(0.001)
0.015
(0.011)
0.136
(0.167)
0.005
(0.006)

341
0.818
50

395
0.939
60

(20)
(21)
(22)
(23)
LI
HI
LI
HI
SGMMa SGMMa SGMMb SGMMb
ECI
ECI
ECI
ECI

(24)
LECI
OLS
ECI

0.801*** 0.840*** 0.684*** 0.700***

(0.072)
(0.062)
(0.070)
(0.068)
0.073
0.032 0.157***
0.053
0.010
(0.076)
(0.053)
(0.056)
(0.086)
(0.104)
0.081* 0.184*** 0.167* 0.150**
0.011
(0.046)
(0.062)
(0.086)
(0.062)
(0.035)
0.000
0.001*
0.002
0.001
0.001
(0.001)
(0.000)
(0.002)
(0.001)
(0.001)
0.009** 0.013** 0.011 0.026** 0.026***
(0.004)
(0.005)
(0.007)
(0.013)
(0.009)
0.096**
0.029
0.207
0.573** 0.272**
(0.039)
(0.089)
(0.142)
(0.260)
(0.107)
0.001
0.000
0.015
0.012
0.006
(0.005)
(0.004)
(0.010)
(0.008)
(0.005)
46
60
50
65
0.468
0.240
0.805
0.700
0.002
0.011
0.011
0.016
0.208
0.607
0.173
0.779
300
363
300
363
398
0.728
50
60
50
60

(25)
HECI
OLS
ECI

0.216**
(0.096)
0.087**
(0.037)
0.003**
(0.001)
0.013
(0.010)
0.148
(0.149)
0.001
(0.005)

338
0.927

(26)
(27)
(28)
(29)
LECI
HECI
LECI
HECI
SGMMa SGMMa SGMMb SGMMb
ECI
ECI
ECI
ECI
0.874*** 0.718***
(0.085)
(0.054)
0.013
0.007
(0.051)
(0.034)
0.097* 0.182***
(0.053)
(0.051)
0.000
0.001**
(0.001)
(0.000)
0.011** 0.006
(0.005)
(0.006)
0.103*
0.093
(0.054)
(0.071)
0.001
0.001
(0.003)
(0.003)
56
56
0.199
0.137
0.002
0.000
0.760
0.126
359
304
57

58

0.623***
(0.100)
0.083
(0.057)
0.112
(0.070)
0.002
(0.001)
0.011
(0.011)
0.178
(0.146)
0.013*
(0.007)
62
0.591
0.007
0.964
359

0.862***
(0.083)
0.088
(0.061)
0.095*
(0.051)
0.002***
(0.001)
0.009
(0.010)
0.007
(0.191)
0.012
(0.012)
62
0.807
0.005
0.275
304

57

58

Notes: LI: below mean income, HI: above mean income, LECI: below mean ECI and HECI: above mean ECI. System-GMM estimations for dynamic
panel-data models. Sample period: 19602005.
a
IPP, lrgdpch and L.ECI were treated as endogenous. Their lagged values used as instruments in the rst dierence equations and their lagged rstdierences were used in the levels equations.
b
All variables were treated as endogenous. Their lagged values used as instruments in the rst dierence equations and their lagged rst-dierences were
used in the levels equations. Principal Components (PCA) were used to keep number of instruments close to the number of panels. Two-step results using
robust standard errors corrected for nite samples (using Winmeijers, 2005, correction). t-Statistics are in parenthesis. Signicance level at which the null
hypothesis is rejected: ***, 1%; **, **, 5%, and *, 10%.

two-step GMM system estimates point to causality, but we

acknowledge that more specic qualitative and case study
research is needed to further understand the mechanism at
work. The fundamental underlying question is: Which is the
specic transmission mechanism in which IPR standards aect
economic complexity? One possible pathway is through
human capital. In Table 4 we present a set of regressions
including IPR interacted with selected economic, demographic, and political variables. We focus on dynamic system
GMM estimates considering lagged ECI, income per capita,
IPR and the IPR interacted as endogenous variables. We nd
that the interaction term only yields signicant for FDI as percentage of GDP (fdi) and for the total years of schooling
(lyr_sch). 16 However, of the multiple interactions presented,
only the regression with total years of schooling appears consistent with the IPR directional impact being contingent on the
level of development we have found so far. Specically, regression (35) shows that IPR has an independent negative eect on
ECI but has a positive eect on economic complexity when
interacted with the level of human capital. Regressions (36)
and (37) divide the sample using the sample average years of
schooling (6.18 years). Again the results conrm the previous
ndings. Increases in IPR standards tend to hurt economic
complexity in countries with low levels of human capital and
benet countries with high levels of human capital.
How can these results be interpreted? Extant theory on the
impact of intellectual property rights points to a trade-o
between innovation and diusion of technology. Human capital is likely to be one of the central determinants in this tradeo. Countries with higher human capital are likely to benet

from higher standards in intellectual property as they are able

to engage in innovative endeavors more eciently and productively than countries with lower levels of human capital. This
means that for countries with high levels of human capital, the
positive outcomes of higher innovation overcome the negative
eects of lower diusion.
This is likely not the case in countries with lower levels of
human capital. Countries with lower human capital nd it
more dicult to innovate as they are probably already quite
far from the technological frontier. Without sucient scientists and experts they are unable to reap the theoretical benets
of increased incentives to innovate. For countries with low levels of human capital, the positive outcomes of higher innovation do not overcome the negative eects of lower diusion of
technology due to stricter IPR standards.
The regressions reported contain a number of control variables which themselves are interesting determinants of economic complexity. We conrm for example that GDP per
capita is positively related to economic complexity. Richer
countries manufacture more technologically complex goods
than poorer ones. In addition, our results indicate that government spending is negatively related to economic complexity.
This suggests, consistent with mainstream literatures, that an
excessively large government might hurt economic complexity
due to government ineciencies (Barro, 1991). However, it
should be noted that our measure of government spending
concentrates on consumption and not public investment that
would be more likely to aect economic complexity. Another
result from these regressions is that the level of human capital
does not directly aect the economic complexity of the

DO STRONGER INTELLECTUAL PROPERTY RIGHTS INCREASE INNOVATION?

673

Table 4. Transmission mechanism economic complexity, IPR and IPR interacted

Variables
Ipr
Ipr interacted
Openc

(30)
ECI

(31)
ECI

(32)
ECI

(33)
ECI

(34)
ECI

(35)
ECI

(36)
ECI
LHC

(37)
ECI
HHC

0.086**
(0.036)
0.006
(0.025)
0.001
(0.001)

0.108***
(0.034)
0.011**
(0.005)

0.098**
(0.046)
0.001
(0.004)

0.087**
(0.043)
0.432
(0.344)

0.082*
(0.047)
0.004
(0.007)

0.153**
(0.066)
0.110***
(0.033)

0.147**
(0.069)

0.106**
(0.046)

52
0.280
0.015
0.690
266
55

52
0.223
0.000
0.150
420
78

Fdi

0.020
(0.013)
0.006
(0.010)

Cg

0.016**
(0.007)

polity2

0.074**
(0.030)

Lpat

0.065
(0.059)
91
0.211
0.001
0.139
678
93

lyr_sch
# of Instruments
Hansen test (p-value)
AR 1 test (p-value)
AR 2 test (p-value)
Observations
Number of id

93
0.258
0.002
0.138
686
94

86
0.300
0.000
0.381
582
88

93
0.323
0.002
0.156
686
94

85
0.228
0.002
0.326
671
92

70
0.255
0.115
0.236
434
71

Notes: System-GMM estimations for dynamic panel-data models. Sample period: 19602005. IPR, lrgdpch, L.ECI and the interaction variable were
treated as endogenous. Their lagged values used as instruments in the rst dierence equations and their lagged rst-dierences were used in the levels
equations. Principal Components (PCA) were used to keep number of instruments close to the number of panels. Two-step results using robust standard
errors corrected for nite samples (using Winmeijers, 2005, correction). t-Statistics are in parenthesis. Signicance level at which the null hypothesis is
rejected: ***, 1%; 5%, and *, 10%. IPR Interacted is IPR interacted with the other main term. LHC: below mean lyr_sch, HHC: above mean lyr_sch.

Table 5. Economic complexity (ECI) and intellectual property index (IPP) OLS, pre and post TRIPS
(1)

Method
Variables
Lrgdpch
Ipr
Openc
Cg
lyr_sch
polity2
Year FE
Country FE
Observations
Number of id
R-squared
R-squared within

(3)

(4)

All
OLS
ECI

(2)
Pre 1995
LI
OLS
ECI

HI
OLS
ECI

All
OLS
ECI

0.035
(0.118)
0.084***
(0.046)
0.000
(0.001)
0.038***
(0.009)
0.527***
(0.105)
0.005
(0.005)
Y
Y
463
82
0.9272
0.1480

0.084
(0.149)
0.010
(0.068)
0.001
(0.002)
0.038***
(0.010)
0.427**
(0.204)
0.013*
(0.007)
Y
Y
240
51
0.8446
0.3128

0.114
(0.191)
0.104
(0.073)
0.001
(0.002)
0.013
(0.017)
0.351
(0.269)
0.003
(0.006)
Y
Y
223
47
0.9485
0.2354

0.097
(0.130)
0.037
(0.050)
0.001
(0.002)
0.015
(0.017)
0.448
(0.363)
0.013
(0.008)
Y
Y
273
92
0.9740
0.0376

(5)
Post 1995
LI
OLS
ECI
0.410
(0.373)
0.144**
(0.063)
0.003
(0.002)
0.017
(0.029)
0.153
(0.669)
0.021*
(0.011)
Y
Y
101
0.929
0.1323

(6)
HI
OLS
ECI
0.381
(0.245)
0.131**
(0.064)
0.001
(0.002)
0.038
(0.024)
0.015
(0.496)
0.024
(0.021)
Y
Y
172
60
0.9741
0.1059

Notes: All regressions include a trend. Robust standard errors in parentheses; *signicant at 10%; **signicant at 5%; ***signicant at 1%. LI: below mean
income, HI: above mean income.

country. Although as pointed out in the previous section,

human capital seems to have an indirect eect on ECI once
it interacts with intellectual property rights, helping explain

why some countries benet from increases in IPR standards

while others do not. Finally, in light of important debates
regarding the quality of political institutions and development,

674

WORLD DEVELOPMENT

we do not nd evidence of political institutions signicantly

aecting economic complexity.
Chronology seems particularly important here given the
watershed moment in global IPR protection spurred by the
implementation of the TRIPS agreements. To study the potential existence of a structural break around that date we divide
the sample around 1995 and re-run our main equations. 17
Interestingly, the OLS estimates seem to indicate that the positive relationship between ECI and IPR breaks down around
1995. From 1995 onward, we nd evidence of a positive
relationship only for high-income countries and a negative
relationship for low-income countries. These results suggest
that the increasing rigidity of IPR standards in low-income
economies after TRIPS was damaging to their innovative
eorts (See Table 5).
A new ank of research has questioned the validity of the
mathematical procedure carried out by Hidalgo and Haussman (2009) in developing the ECI index. This view holds that
the method of reection used in the ECI Index fails to measure
the competitiveness of countries due to the imposed linear
relationship between country competitiveness and product
complexity (Cristelli, Gabrielli, Tacchella, Caldarelli, &
Pietronero, 2013; Tacchella, Cristelli, Caldarelli, Gabrielli, &
Pietronero, 2013). They argue that the non-linear dependence
between the two variables is the fundamental element required
to capture complexity. To verify that our results hold using
this alternative measure of complexity we run a series of
regressions using our OLS dierence in dierence specication
and two-stage instrumental variable (2SIV) technique. 18
Although the new dataset is considerably shorterit spans
only from 1995 to 2010the results are broadly similar to
those we obtained with the ECI. 19
Finally, while we have our concerns about the overall
usefulness of patent and research spending data, we have
nevertheless explored our results with this indicator to compare the ECI with current literatures that have relied upon
these variables as their proxy measure of innovation. 20 To
do this we re-estimated our main equations using the logarithm of patents and research spending as percentage of
GDP as the dependent variables. 21 The results for the world
sample and for high-income countries are broadly similar to
the ones presented using ECI and point to a positive relationship between patents and research spending and IPR. For the
sample of low-income countries, as opposed to when ECI is
used, OLS dierence estimates show some evidence of a
positive relationship between patents and IPR. However, the
two-step system GMM estimates point to a non-signicant
relationship between patents and IPR in low-income countries.
5. CONCLUSION
In this work we examine the relationship between the protection of intellectual property rights and innovation, analyzing the impact of increasingly rigorous IPR standards on the
level of economic complexity. For a world sample, we nd that
stronger intellectual property laws have a positive impact on a
countrys ability to expand its productive frontier and apply
tacit and explicit innovative advances. However, this eect is
restricted to countries with an above average level of development and complexity. For developing countries, our results
show that IPRs have at best a non-signicant eect on economic complexity and might even have a negative eect on
these countries ECI. A countrys level of human capital seems
to be pivotal. Consistent with a stream of empirical work

which points to a close relationship between human capital

and innovation (Dakhli & De Clercq, 2004) we nd that countries with higher levels of human capital enjoy higher innovation overcomes. Poorer countries, with lower levels of
sophistication and low levels of human capital are not able
to overcome the negative eects of IPRs.
Advances have been made over the last decade to try to
point researchers interested in innovation and science toward
more comprehensive measurements of innovative activity
(Grupp & Mogee, 2004). In this vein, our paper addresses
the current problems with traditional measurements of innovation, (in particular for developing countries), and employs
a novel indicator of export sophistication to examine the
eects of IPRs. Future research is needed to unravel how precisely this causal mechanism works. The interaction between
IPRs and human capital, focusing on domestic productivity
or more specically on intra-industry diusion, seems more
pressing than ever. How are technologies shared between
developing rms when monopoly periods are extended and
intellectual property regulation is increasingly rigid? How
has the elimination of policies such as Bolar rights, for example, aected the introduction of o-patent pharmaceutical
products in the developing world?
Another line of future research could address the expanding shape and application of global IPR systems. As we discussed earlier in the paper, a number of issues relating to
intellectual property rights standards are not addressed in
the GP index. The next step in unraveling the impact of
the global IPR shift should be to examine not only how
governments say their IPR rules are applied (through the
treaties they sign) but to estimate the eects of how they
are actually implemented and enforced. Of particular importance for developing countries is how IPR strength might
be aected by exhaustion norms and competition laws.
While local institutions may provide 20 years of patent protection, eective protection may vary appreciably due to
other reasons. Moreover, recent advances in science and litigation threaten to push the GP Index into obsolescence.
The US Supreme Court ruled on the constitutionality of
patenting genes this past year. The Court unanimously
determined that unmodied genes were products of nature
and therefore not patentable (Supreme Court of the
United States, 2013). 22 Europe, by contrast, does not
currently limit the patenting of genes. 23 The GP Index
was created almost two decades ago, before questions about
genetic patenting had been addressed by national court systems. It does not include gene patenting within its scale. 24
What does this mean for the Index and for the dierent levels of protection now oered in these two IPR systems?
Mapping new directions in patent litigation will be important in examining the future relationship between IP standards and their eects on innovation.
Since its signing, the potential eects of the TRIPS agreement have provoked concern among policy makers and
researchers alike. Decades of mixed evidence on the use and
eectiveness of patents has taught us that the complex innovation systems adopted by tremendously heterogeneous countries results in uneven benets from IPR standardization to
those varied countries. As eloquently summarized by Odagiri
et al in their collection on technological catch-up:
Patents, as commonly argued, may promote innovation and catch-up.
They may also foster formal technology transfer. Yet they may prove
to be barriers for developing countries in acquiring technologies
through imitation and reverse-engineering. Therefore the current move
to harmonize the IPR system internationally, such as the TRIPS

DO STRONGER INTELLECTUAL PROPERTY RIGHTS INCREASE INNOVATION?

agreement, may have unexpected but grave consequences on developing countries.
[Odagiri et al., 2010, p. 2]

Our paper oers evidence that developing countries have

not enjoyed the benets of global IPR standardization. These
results conrm the need for room for manoeuvre within the
Treaty, a subject about which much has been written in terms
of public health (Grosse Ruse-Khan, 2011; Musungu & Oh,
2006; Outterson, 2008). The results in this paper seem to suggest that eorts in this direction thus far, including the WTOs
multiple programs for technological transfer and extensions
for least developed countries, have not been sucient in
buering these countries from the negative eects of increasingly rigid IPR norms. 25

675

Our research builds on a number of studies that suggest that

institutions are important drivers of technological change and
that local policy should be more closely tailored to the
development levels of respective countries (Acemoglu &
Akcigit, 2012; Chang & Cheema, 2002; Cimoli et al., 2011). This
line of thought runs counter to arguments that the benets from
higher levels of IPRs are positive and linear (Kanwar &
Evenson, 2003; Schneider, 2005). Instead, the results suggest
that the outcomes of increasingly rigid IPRs, while engendering
some positive eects at a global level, have nevertheless replicated and reinforced global productive inequality.

NOTES
1. For a full review of these literatures, see Allred and Park (2007).
2. Other instruments within IPR institutions include copyright and
industrial design. Firms may rely on these or other alternative strategies
to confront the problem of appropriability. A discussion of why rms select
(or not) formal IPR rights can be found in Hall, Helmers, Rogers, and Sena
(2012), supported by empirical evidence (Anton & Yao, 1994; Bhattacharya
& Guriev, 2006) and in case studies at the industry level (Arora, 1997).
3. For an account of the political process underlying the negotiation of
the agreement see Jawara and Kwa (2003).
4. It is important to note that at the time the US patent standard was 17 years
and that many of the countries adhering to the new rules did not have patents
for products such as pharmaceuticals. For an account of the political process
underlying the negotiation of the agreement see Jawara and Kwa (2003).
5. Implementation of new IP norms has occurred in a staggered time
sequence, commencing in 1996, on the heels of TRIPS approval. Countries
such as Brazil amended their local rules to be consistent with the international
norms within a year. India, by contrast, negotiated a transition time
concluding in 2005. This June (2013), a further extension of treaty exibilities
was granted for a set of least developed countries until 2021. In this sense,
while the shift has been unitary in direction, timing has been heterogeneous.
6. Once these economies have developed, there is evidence that they take into
account the strength of local IPR systems when making overseas investment
decisions (Branstetter et al., 2006; Jeong-Yeon & Manseld, 1996).
7. Patents were the most relevant for pharmaceuticals and chemicals,
where approximately 30% of all products required patents. In three of the
industries surveyed, patents were only marginally relevant (petroleum,
machinery, and fabricated metals) and in another set of seven industries
patents were deemed irrelevant to the development and commercialization
of innovative products. Notably, this group included high-tech products
such as motor equipment and electrical equipment.
8. For a broader discussion of the pros and cons of patent data, see
Griliches (1998).
9. An interesting review of emerging patenting patterns is presented in
Kortum and Lerner (1999).
10. The data on Patents are from Lederman and Saenz (2005): Innovation
and Development around the World, 19602000, World Bank Working
Paper No. 3774. The data are from the U.S. Patent and Trademark Oce
(USPTO) and are the granted patents assigned to countries based on the
country of residence of the rst inventor (Lederman & Saenz, 2005).

11. Although this is a mechanism that has been dicult for a number of
countries to institute, there are a handful of exceptions (Brazil, 2007;
Thailand, 2006, 2007; Ecuador, 2010). For further discussion of the
challenges in the construction of compulsory licenses see Beall and Kuhn
(2012), Sweet and Das (2013)).
12. The United States, consistently the highest scoring country in the
Index for example does not allow for states to be sued by patent holders.
13. As robustness check we re-run all the regressions in Table 1
controlling for autocorrelation of order 1. The results from these
regressions are broadly similar to the ones presented in the paper. The
details are available upon request.
14. The kernel estimations conditional on dierent initial GDP per capita
show that lower income countries have a distribution of ECI that is more dense
and with a lower mean value than countries with higher income per capita.
15. Since dividing the data using average income and average ECI might
be considered somehow arbitrary we also rely on cluster analysis to look
for alternative groupings of the data. Formally, we use k-means cluster
analysis on our three main variables: ECI, IPR and GDP per capita. The
Calinski/Harabasz pseudo-F test indicates the presence of 2 or 3 clusters in
the data. The results from the clustered regressions are broadly similar to
the ones presented in the paper. The details are available upon request.
16. FDI is inward foreign direct investment from the World Bank World
Development Indicators. Lpat is the logarithm of the total number of
patents granted by the USPTO by year for each country. Data from
Lederman and Saenz (2005).
17. Furthermore, we divide the sample in 3 subsequent 15-year periods
and run cross-section instrumental variable estimations of our main
equation. IPR, lrgdpch, and ECI were treated as endogenous and their
initial values used as instruments. The results are supportive of the ones
presented in the paper and are available upon request.
18. We are very thankful to Matheiu Cristelli and co-authors for sharing
their dataset with us.
19. The shorter time series length of the new dataset makes dicult to use the
2-step system GMM technique we used in the longer ECI dataset. Alternatively, we use a less data intensive technique (2-step instrumental variables) to
control for the potential endogeneity of IPR. Results available upon request.
20. We thank an anonymous referee for suggesting this point.

676

WORLD DEVELOPMENT

21. Results available upon request.

22. The case was specically focused on the BRCA1 and BRCA2 gene
patents for which Myriad had claim. Myriad exercised a vigorous
campaign to protect its property rights. Laboratories and researchers
perceived to be encroaching on what Myriad considered its territory were
legally notied. The combined tight st of Myriad and the prices it
charged for its gene identication test pushed the price out of reach for
many who needed it and generated a burst of health coverage inequality.

24. The category of coverage within the Index is comprised of seven

binary components: patentability of pharmaceuticals, chemicals, food,
plant and animal varieties, surgical products, microorganisms, and utility
models.
25. This June (2013), least developed countries were granted their
second extension of treaty exemptions until 2021. However, many of these
countries have already implemented the minimum requirements stipulated
in the Treaty.

23. It should be noted that the ruling does allow for the patenting of
cDNA, or so-called synthetic DNA molecules, that require an inventive step.

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