IPRs, Economic Development & Modeling Keith E. Maskus 9 th Annual Conference on Global Economic Analysis June 2006

Policy Environment  Multilateral harmonization efforts - TRIPS at WTO (minimum standards in patents, copyrights, trademarks, plant variety rights, trade secrets, enforcement) - WIPO treaties  Regional trade agreements and “TRIPS Plus” IPR standards  Expanding rights in US and EU  New rights in developing countries?

Some Historical Perspective  IPRs reform tends to follow market needs - U.S. patent and copyright history - Japanese post-war patent system - Korean and Taiwanese IPR development  Statistically IPR laws vary across countries and over time as economies develop.

Some implications  Optimal protection is not the same in all countries.  Interests in IP protection go up among domestic businesses as incomes rise and technical abilities expand: Taiwan and Korea in IT and electronics patents. India (films) and Jamaica (music) in copyrights. Argentina in plant variety rights.  TRIPS (and TRIPS-Plus) standards are excessive for poor countries.  Likelihood of strong enforcement in poor countries is weak in short run.

Objectives of a balanced system of IPRs  Ex-post market power to stimulate ex-ante investment in innovation;  Commercialization of new goods;  Publication and diffusion of new information;  Support markets for trading technology and information;  Consumer guarantees of product origin;  Facilitate complex multi-actor transactions in knowledge goods.

Potential gains for developing countries  Promote technical change, both internal innovation and imported technology;  Broader domestic and foreign markets;  Greater consumer certainty;  More cultural goods created;  Higher value added in branded goods;  Commercialization of traditional knowledge;  More products developed for DC markets.

Potential costs for developing countries  Administrative and enforcement costs;  Support market power in presence of weak competition;  Weaker bargaining positions in technology agreements and potential licensing abuses;  Block follow-on innovation and restrict imitative competition;  Raise costs of inputs, medicines, agricultural technologies;  Restrict fair-use access to educational, scientific, and cultural materials (eg databases);  Quasi-permanent shift in terms of trade; rents shifted abroad.

Evidence remains scarce in developing countries  Studies tend to use aggregate data (need more micro surveys);  Most IPR reforms are recent or ongoing (TRIPS);  IPRs are only one factor in technical change and competition processes;  IPRs (and other regulations) interrelate with trade policy and other reforms;  Significant causality problems in econometric analysis.

Patent reforms and local invention  Weak prospects for promoting local invention from stronger patents: Lerner’s historical study; Branstetter’s work on Japan; Declining patent registrations by Mexican companies post-reforms. Rise in Korea’s patenting after lag.

Main impacts may be on ITT  Inward technology transactions seem to be improved by reforms in patents and trade secrets. International trade flows; Sensitivity of FDI and its composition; Licensing and externalization; Markets for technology services; No evidence (or negative) for poorest countries.  Complementarity between trade-FDI liberalization and IPRs reform in industrializing economies.  Spillovers can be significant.

Policies to complement IPRs in encouraging innovation and ITT  Build human capital and improve ability to absorb technology;  International openness and competition on domestic markets;  Tax advantages or subsidies in commercial R&D programs (learning issue);  Effective national innovation systems Public R&D capacity; Improve information infrastructure

Policies to manage problems with IPRs: limitations on scope  Patent standards: eligibility, prior art (novelty), inventive step, opposition, research exemption;  Exhaustion and parallel imports;  Competition policy;  Education and technology policy: fair use in copyrights;  Health policy Price controls and compulsory licenses; Access to generic essential medicines.

A crude summary  IPRs matter little for poorest countries and needs (priorities) are broader.  IPRs can be pro-innovation and pro-competitive in middle-income countries if structured flexibly.  Experimentation with IPRs standards in developing countries may be important.

Attitudes toward TRIPS in DCs  Considerable dissatisfaction among developing-country governments: Weak link to market access; Limited success in ITT; Recognition of need for broader reforms; Concerns in agriculture, medicines, science and education.  Implementation and enforcement lag behind.  May need a moratorium on global standards setting (WIPO, TRIPS Plus).

What are emerging IPRs issues?  Whether the TRIPS waiver on generic imports of drugs can be made to work;  Whether new or modified forms of IPRs should be used to protect traditional knowledge and genetic resources;  Whether prior informed consent and disclosure of sources are required in patent applications for genetic resources;  Whether special protection for geographical indications should extend beyond wines and spirits;  How to encourage more R&D in areas of concern for developing countries.

Importance of considering IPRs in computational framework  Clear policy importance for issues of core-periphery economics, growth, etc.  What is “better”: rigorous or flexible IP reform?  Critical to know if IPRs reforms are offsets or complements for trade liberalization.  Need better integration of IPRs static and dynamic theory with computational modeling.  Need to apply clear thinking to representation of what IPRs are and how they operate.  Sectoral international models (agriculture, pharmaceuticals, software) may be helpful start.  Inter-sectoral spillover effects from IPRs liberalization have not been modeled.  Questions of regional versus multilateral harmonization are important but not studied.

IPRS and computational analysis: conceptual problems IPRs are broad regulations with no obvious “price wedge” equivalents. Ideas and knowledge are public goods: appropriate conception of knowledge capital? Patents, trademarks, copyrights operate in different ways and have sectoral biases. Economic valuation of IPRs (rents) depends on market circumstances and policies. “IP goods” are inherently subject to static and dynamic IRTS. IPRs trade off static monopoly distortions for dynamic innovation gains: parameterization and initial conditions would matter. Representation must consider impacts of IPRs on innovation, diffusion (imitation), transactions costs. IPRs would interact with trade policy, tax policy, etc.

Some relevant computational literature  Static, partial equilibrium studies: Many on pharmaceutical pricing. Multi-sectoral analysis of Lebanon (Maskus 2000).  Econometric-computational analysis of static rent transfers from TRIPS (McCalman JIE 2001).  Growth model with endogenous new intermediate varieties raises productivity from trade liberalization (Rutherford-Tarr JIE 2002) but IPRs not considered.  Simulation of N-S quality ladders model with imitation and learning finds stronger S IPRs can raise growth and welfare in both N and S, even more with S trade liberalization (Connolly- Valderrama AER P&P 2005).

Modeling elements: 1  Preferences for new goods: quality and variety;  Conceptualize knowledge capital and incentives to trade it;  Innovation and imitation costs and elasticities with respect to IPRs;  Careful sectoral modeling of use of IPRs;  Parameterization of, eg, patents: Duration and scope of protection; Raises imitation costs or requires higher licensing fees; Reduces transactions costs in ITT; Could raise or reduce innovation incentives in general equilibrium, depending on strength of market power.

Modeling elements: 2  Market structure, pre- and post-reform. Monopolistic competition likely to be OK for most IPR- protected goods. Monopoly may be significant in some sectors (pharma, software). Who gets rents and are profits repatriated?  Linkages to trade liberalization: impact of more foreign varieties.  Exports of new goods.  Feedback to induced FDI.  Intertemporal payments balance.

An ambitious agenda  Relevant parameters will be hard to find.  Model selection will require science and judgment.  If anyone wants to work in this area, let me know: