Patents, Technology Adaptation, and Exports to Developing Countries

Abstract

This paper conducts a disaggregated analysis of high technology trade to determine which high technology goods, if any, developed countries export in the presence of stronger developing country patent rights. One argument for implementing strong patent rights in developing countries is that doing so will attract high technology exports from industrialized countries, which should consequently lead to economic growth. However, the impact of patent rights on high technology exports is not identical across all industries. This paper postulates that the role of developing country patent rights in increasing high technology imports depends on the production and adaptation costs of foreign innovating firms, and the usefulness of the high technology good in developing country production processes. When the cost of adapting a foreign innovation for use in developing countries is relatively low, and when the innovation is highly useful in the domestic production processes of developing countries, strengthening patent protection has little impact on attracting foreign innovations. However, when the cost of adapting the good for use in developing countries is relatively high, patent protection can be used as a policy tool to limit competition, raise the price received by innovating firms, and, ultimately, attract foreign high technology goods from abroad.