Patent club convergence among nations.

• Author: Benoliel, Daniel

INTRODUCTION I. PATENT CLUB CONVERGENCE: THE POSITIVE FRAMEWORK A. Convergence Over Innovation-led Growth B. Coalitions and Convergence Clubs C. Growth Theory and Convergence Over Innovation-led Growth II. THE MODEL A. Methodology B. Findings 1. The Null Hypothesis (H0): Patent Propensity Clusters 2. The First Hypothesis (H1): Inter-Cluster Convergence 3. The Second Hypothesis (H2): Intra-Cluster Convergence III. THEORETICAL RAMIFICATIONS CONCLUSION INTRODUCTION

Innovation-related international organs, and primarily the World Trade Organization (WTO), the World Intellectual Property Organization (WIPO) and the United Nations Conference on Trade and Development (UNCTAD), traditionally have been under performed in offering a comprehensive innovation policy for all countries, particularly for developing countries. This issue has been highlighted both before and throughout the establishment of the WTO and the TRIPS Agreement. It was therefore only natural that upon its adoption, TRIPS merely consisted of a flat intellectual property "one-size-fits-all" policy for all WTO-members. In so doing, it implicitly corresponded with an earlier exemplary "Pax-American" World Bank-led neoclassical economic growth approach. Similarly, it should not come as a surprise that the WIPO remains to this day inconsistent in its preferred theoretical setting for innovation-led growth, as witnessed in the organization's archetypical Development Agenda adopted in October 2007, after years of deliberations.

As such, only few issue-based coalitions emerged over innovation-led growth or intellectual property-related policies. (1) The exception to the above finding, of course, is the existence of two structural alternatives that remain outside the scope of this article. The first is the loose compilation of civil society groups and movements, including numerous governments and individuals converging over broad egalitarian principles promoted by iconic movements, such as the Access to Knowledge (A2K) or the broad reaching Open Source movement. The second alternative to such issue-based coalitions is a plethora of overly generalized regional coalition blocs, such as the African Group or the European Union. These all-purpose regional blocs fail, however, to account for a more accurate delineation of cherry-picked countries converging over issue-based innovation-led growth or intellectual property-related policies.

Nonetheless, de facto heterogeneity among countries over other economic-related growth policies is commonly witnessed in a variety of WTO coalitions. In particular, country coalitions are increasingly becoming the informal preferred response of developing countries to imbalances in power at the WTO. In response to the few under-theorized innovation and intellectual property-related coalitions, this article offers a unique clustering analysis. It does so within the framework of endogenous growth theory, measuring optimal convergence by country coalitions into multiple innovation-based growth equilibria rather than through a single "one-size-fits-all" theoretical setting. The measurement is based on countries' patent propensity rates as proxy for their domestic innovation rates. Convergence literature herein contributes a seminal analytical insight, codenamed club convergence. (2) As the term suggests, club convergence is the hypothesis whereby only countries that are similar in their structural characteristics and which have similar initial conditions will converge with one another.

Thus, one potential innovation-led growth hypothesis could be that richer OECD countries may shape one convergence club, the developing countries an additional club, and the underdeveloped yet another. Alternatively, different club convergence groupings may be telling of how countries and groups thereof converge--or ought to--over innovation-led growth and related intellectual property policies.

Part I offers a positive theoretical framework based on endogenous growth theory and convergence analysis, briefly introduced above. Part II follows with a supporting empirical model, which serves as a unique statistical model, while contributing to a regional convergence club understanding of endogenous growth theory. The model carries out cluster analyses for sixty-six innovating countries at two different points during the 1996-2011 time period, namely at the beginning and end of the period, as well as measuring performance throughout the entire period. That is, it functions in order to detect groups of countries that were similar in their patent propensity rates as proxy for their domestic innovation rates. The model delineates two large patent propensity-gaps and convergence patterns within the world economy. The first gap refers to the great distance that separates the middle group of "followers" from the stronger "leaders" in terms of patent propensity capabilities. The second gap similarly refers to the impressive gap that separates the weaker "marginalized" from the followers clubs.

Part III then follows with numerous theoretical ramifications of the findings of Parts I and II. These ramifications relate to the need for additional corroborating research intended to explain remaining discrepancies regarding shifts and reversals in rates of regional convergence. Thus far, there is a lack of evidence for the slowness or nonexistence of inner club convergence, especially in advanced economies, but also in emerging ones.

1. PATENT CLUB CONVERGENCE: THE POSITIVE FRAMEWORK

   1. Convergence Over Innovation-led Growth

      Evidence increasingly shows that developing countries differ not only in their propensity to attract Foreign Direct Investment (FDI), trade, and technology, but also in their abilities to innovate. (3) Moreover, much evidence increasingly foretells how developing countries differ in their ability to make use of intellectual property rights as a tool for fostering domestic innovation. (4) All of these startling pieces of evidence are found against the backdrop of a traditional World Bank-led inflexible North/South country group dichotomy, or some variation thereof. (5) Such an innovation policy setting continually highlights the asymmetries between Northern countries, which are deemed to generate innovative products and technologies, and Southern countries, which are generally thought to consume them. (6) Surely, some international organs did not make a clear theoretical choice on the matter. WIPO or UNCTAD traditionally have failed in adopting a proper innovation policy for developing countries in particular. This challenge has been especially evident before and throughout the establishment of the WTO and the TRIPS Agreement. (7) It was, therefore, only natural that upon its adoption, TRIPS merely consisted of a flat intellectual property policy for all WTO-members, corresponding with an earlier World Bank-led "Pax-American" neoclassical economic growth model. (8)

      It should not have come as a surprise, therefore, that WIPO remains to this day inconsistent on this matter, as witnessed in the organization's archetypical Development Agenda adopted in October 2007 after years of deliberations. (9)

      A convenient way to distinguish the two views is to ask: are poor economies catching up with those already innovatively advanced, and thus richer? Or, instead, are they caught in some innovation-related poverty trap? (10)

      These two Capitalist Space Economy questions traditionally have been dominated by two opposing views as to the expected long-run trajectories of regional development. (11) The first of the two views, whereby poor economies incipiently catch up with those already richer, rooted in neoclassical equilibrium economics, holds that, provided there are no central barriers to the function of market processes, in an integrated national economy there are strong pressures leading to the general convergence of regional income-related indicators over time. Regional discrepancies can only be a short-term state. That is the case, since such disparities will instigate self-correcting movements in prices, wages, capital, and labor, thereby restoring the tendency towards regional convergence.

      The convergence hypothesis, whereby poor economies might "catch up," has generated a huge body of empirical literature which thus far has barely addressed innovation or intellectual property-related economic growth by developing countries. (12) Instead, the most popular examples covered in the literature include:

      [C]onvergence [in] incomes between rich and poor parts of the European Union; [convergence] in plant and firm size in industries; in economic activity across different regions (states, provinces, districts, or cities) within the same country; in asset returns and inflation rates across countries in a common trade area; in political attitudes across different groups; and in wages across industries, professions, and geographical regions. (13) The convergence hypothesis on per capita income convergence has uncovered a profound and possibly inspiring empirical finding for innovation-led growth analysis as well. It found through geographically disaggregating poor and rich economies, such as within German reunification or the effects of regional redistribution within individual countries and across the European Union, that all appear to be converging towards each other at a steady, consistent rate of two percent per year. (14)

      In the meantime, convergence literature saw another convergence regression. Codenamed club convergence, (15) as the term suggests, is the hypothesis whereby only countries that are similar in their structural characteristics, and which have sufficiently similar initial conditions, will inter-converge to one another. Thus, one potential innovation-led growth hypothesis could be that richer OECD countries may form one convergence club, developing countries will form another, and the underdeveloped yet another. Alternatively, different...