1. Macroeconomic issues and policies Outline: IPRs and Economic Growth Trade-Related Aspects of Intellectual Property (TRIPS) Intellectual Property Rights, Exhaustion, and Parallel Imports Piracy and Counterfeit R&D in the Global Economy International Migration of Skilled Labor

2. Introduction Ultimately would like to know impact of IPRs on economic growth and the welfare of society – This is a difficult question, but gathering evidence on this may increase chances of getting policies right – Note theoretical arguments not conclusive - can have models with positive or negative outcomes (Chapter 9) Different types of evidence can be gathered: – Cross-country regression evidence (this chapter) – Firm-level analysis (Chapters 5 – 7) – Historical evidence (some examples in this chapter) – Policy-type experiments (analysis of US patent surge, Chapter 11) – Survey evidence on agents perceptions (some discussion in Chapter 3)

3. IPRs and economic growth Complex set of relationships (see Figure 12.1, on next slide, and further diagram on slide after that) IPRs can affect investment, trade, FDI, and R&D These proximate factors can in turn affect a countrys rate of growth Evidence from study by Park and Ginarte (1997) using cross-section data for 60 countries supports this indirect role of IPRs on growth by enhancing investment and R&D Further summaries of evidence are in Allred and Park (2007) and Rogers (2009), see Additional References

4. Figure 12.1

5. Impacts of patenting http://users.ox.ac.uk/~manc0346/IncidenceNov2009.pdf

6. Complex relationship between IPRs and growth In order to benefit from strong IPRs a country needs to have a range of factors conducive to growth Countries at different stages of development benefit in different ways Falvey et al. (2006) found that having strong IPRs benefits both the richest and the poorest nations, but not the middle- income countries Positive effects are due to increased FDI and trade Negative effects arise from inability to imitate and adopt technology freely A further indication from historical studies is that the strength of IPRs may affect the nature of innovation in a country rather than the level of innovation

7. Trade-Related Aspects of Intellectual Property (TRIPS) TRIPS agreement 1996 - membership of the World Trade Organisation (WTO) was made conditional on signing it TRIPS agreement established minimum standards of IPR protection in all WTO member countries Developing countries were given time to make the transition, but grace periods generally expired within a few years of such countries joining the WTO China and India have both become members of WTO/TRIPS Differential impacts of TRIPS – immediate effect (expected) was that rich countries gained more revenues from licensing their technology and exporting high-tech products Poorest countries (esp. Africa) suffered most, because of higher prices for protected products and technologies

8. TRIPS, FDI and technology transfer FDI is sensitive to the IPR regime as transnational corporations (TNCs) fear to invest where no IPRs (Maskus, 2000) Can argue that technology transfer is enhanced due to FDI as these firms bring modernising technology and domestic enterprise can learn from them But technology transfer can only occur if country has the ability to absorb it – needs education and entrepreneurial talent to do this Any new domestic firms will of course be paying higher licence fees for their new technology or higher import prices for imported capital goods that are protected Even so, before the IPR regime, no licences would have been offered

9. Contentious and enforcement aspects of TRIPS TRIPS allows for some flexibility in how countries design and operate IPRs One key issue concerns supply of pharmaceuticals How can poor country improve access to patented but essential medicines for its population (e.g. for AIDS)? One route is to use compulsory licensing which means the government intervenes to confer licence to produce patented drug – obviously not popular with rich countries! Another route is to encourage price discrimination by the rich country producer, but this can run into problems if buyers in poor country can arbitrage by re-exporting (see next slide) Even if IPR regime exists many countries do not have the resources to enforce their own rules

10. Intellectual Property Rights, Exhaustion, and Parallel Imports Exhaustion means that, once a product with IP protection has been sold, the IP rights attached to it are exhausted and no longer offer any means of control to its producer Product can be re-sold by the buyer without the permission of the owner(s) of the IPRs contained in the product Example of international exhaustion – a patented product is sold in the US; this item can be resold to a buyer in Japan and is thus imported into Japan This leads to parallel imports – sales from US producer and onward sales from US buyer can both reach Japan Result is producer cannot separate his international markets, even if he wants to do so in order to charge different prices At present WTO & TRIPS allows each country to decide if it does, or does not, want to apply international exhaustion

11. Piracy and Counterfeiting Piracy refers to large-scale infringement of copyright, particularly for DVDs: One area of interest is the estimates of revenue losses by such agencies as the International Federation of the Phonographic Industries (IFPI) – and specifically whether these estimates are too high - see Png (2007) Another issue is what country-specific factors affect the rate of piracy - see Goel and Nelson (2009) Counterfeit products are those that imitate trademarked products in terms of design and packaging Deceptive counterfeits are assumed to be the real thing and this can be dangerous, for example if drugs, or spare parts Non-deceptive counterfeits may be less harmful, but original manufacturers can still be faced with loss of status for brand

12. R&D in the Global Economy Are R&D spillovers global? – Evidence demonstrates spillovers between rich countries – Absorptive capacity is enhanced by trade and by presence of highly educated populations The globalization of the innovation process – Since 1950s/60s the emergence of trans-national corporations (TNCs) has led to spreading of R&D facilities across rich countries – UNCTAD (2005) study contains a mass of information and background to this and also shows new trends: Globalisation of R&D to China and India: – China: rising R&D in Beijing, Shanghai, Guangzhou – India: rising R&D concentration around Bangalore (See details in Box 12.1)

13. International migration of skilled labour Two way international flows of workers accompany the geographical clustering of innovation Skilled personnel from innovative regions travel abroad, taking their tacit knowledge for which employers elsewhere are willing to pay them high wages Innovative regions attract inward migration of high skilled workers who want to learn the latest techniques and discoveries Each side will complain about their brain drain problem Benefits can be the establishment of new firms and new trade links, as migrants often retain links with former countries Example – Silicon Valley in California has high population of non-resident Indians who have set up companies in both the US and India

14. Questions for discussion 1.Why might strong IPRs hinder economic development? 2.Classify the potential effects of TRIPS by a) income level of country b) mechanism of effects (e.g. FDI) 3.What is the difference between deceptive and non-deceptive counterfeit goods? Does the distinction matter for policy? 4.Conduct some research on the importance of piracy and counterfeit. What is the extent of lost sales to major companies in the US? 5.What forces are driving the globalization of R&D? What effects will it have on the countries involved? 6.Can the brain drain of skilled labour from poorer to richer countries ever be a good thing?

15. References IPRs and growth: Falvey, R., N. Foster and D. Greenaway (2006), 'Intellectual property rights and innovation in developing countries', Review of Development Economics, 10(4), 700-19. Park, W. and J. Ginarte (1997), 'Intellectual property rights and economic growth', Contemporary Economic Policy, XV(July), 51- 61. TRIPS Agreement and Globalisation of R&D: Lall, S. and M. Albaladejo (2002), Indicators of the relative importance of IPRs in developing countries,, Queen Elizabeth House Working Paper, QEHWPS85, Oxford. Maskus, K. (2000), Intellectual Property Rights in the Global Economy, Washington: Institute for International Economics. UNCTAD (2005), World Investment Report, New York and Geneva, United Nations.

16. Additional References IPRs and growth: Allred and Park (2007) Patent rights and innovative activity: evidence from national and firm-level data, Journal of International Business Studies, 38: 6, 878-900 Rogers, M. (2009), The Incidence and Significance of Patenting, available online at: http://users.ox.ac.uk/~manc0346/IncidenceNov2009.pdf http://users.ox.ac.uk/~manc0346/IncidenceNov2009.pdf Piracy: Png, I. (2007) On the Reliability of Piracy Statistics, (Google this title for most recent publication source). Goel, R. K. and M. Nelson (2009) Determinants of software piracy: economics, institutions and technology, Journal of Technology Transfer, 34:637–658