We construct a growth model with status preference to explore the effects of patents on innovation and social welfare. We find a nonmonotonic effect of patent protection on innovation. Additionally, the growth-rate-maximizing degree of patent protection decreases when the strength of status preference is larger. The effect of patent protection on social welfare is ambiguous, depending on the strength of status preference. Moreover, wealth inequality widens as patent protection is reinforced. Finally, by using cross-section regression analysis, we document that a nonmonotonic relationship between patent protection and economic growth is statistically significant and that the growth-rate-maximizing degree of patent protection decreases with the strength of status preference.
We present a model of cumulative innovation where …rms can conduct R&D in both a safe and a risky direction. Innovations in the risky direction produce quality improvements with higher expected sizes and variances. As patentability standards rise, an innovation in the risky direction is less likely to receive a patent that replaces the current technology, which decreases the static incentive for new entrants to conduct risky R&D, but increases their dynamic incentive because of the longer duration-and hence higher reward-for incumbency. These, together with a strategic substitution and a market structure e¤ect, result in an inverted-U shape in the risky direction but a U shape in the safe direction for the relationship between R&D intensity and patentability standards. There exists a patentability standard that induces the e¢ cient innovation direction, whereas R&D is biased towards (against) the risky direction under lower (higher) standards. The optimal patentability standard may distort the R&D direction to increase the industry innovation rate that is socially de…cient.
This study develops a Schumpeterian growth model to analyze the e¤ects of di¤erent patent instruments on innovation. We …rst analyze patent breadth that captures the traditional positive e¤ect of patent rights on innovation. Then, we consider a pro…t-division rule between entrants and incumbents. Given the division of pro…t, increasing the share of pro…t assigned to incumbents reduces entrants'incentives for innovation. This aspect of blocking patents captures the recently proposed negative e¤ect of patent rights on innovation. Finally, blocking patents generate a non-monotonic e¤ect on innovation when the step size of innovation is endogenous due to a novel escape-infringement e¤ect. Calibrating the model to aggregate data, we …nd that a marginal increase in the blocking e¤ect of patent protection is likely to raise economic growth.JEL classi…cation: O31, O34, O40
Many developing countries attract foreign direct investment (FDI) to absorb advanced technology from investors that work at the frontier of technology and then stimulate domestic innovation. Local innovators in host countries might enhance their innovative capability quickly and easily by the presence of FDI (Blalock & Gertler, 2008;Cheung & Lin, 2004;Javorcik, 2004). As the world's largest developing country, China has sought to attract FDI to overcome the technology gap and facilitate a movement towards high-technology industrialisation. As shown in Figure 1, inward FDI has increased rapidly in China, from around 36,000 million US dollars in 1995 to around
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