Innovation, Imitation and Intellectual Property Rights in Developing Countries

• Author: Eden S. H. Yu,Hong Hwang,Jollene Z. Wu
• DOI: http://doi.org/10.1111/rode.12205
• Published date: 01 February 2016
• Date: 01 February 2016

Innovation, Imitation and Intellectual Property

Rights in Developing Countries

Hong Hwang, Jollene Z. Wu, and Eden S. H. Yu*

Abstract

This paper sets up a vertically related market model in which imitation and innovation are endogenously

determined to study the impact of intellectual property rights (IPR) protection on less-developed countries.

It shows how a less-developed country switches from imitation to innovation as it develops. It is also found

that the relationship between IPR protection and economic development is U-shaped. The IPR protection

tends to go down and then go up as income rises. This f‌inding also conforms with that in the empirical lit-

erature on IPR protection.

1. Introduction

Since TRIPS (Trade-Related Aspects of Intellectual Property Rights) came to be

included on the agenda of the General Agreement on Tariffs and Trade (GATT)

Uruguay Round trade talks in the 1990s, studies on intellectual property rights (IPR)

protection have received much attention among trade scholars. There are a few

empirical studies on IPR launched in the 1990s. Among these studies, Maskus (2000),

Primo Braga et al. (2000) and Chen and Puttitanun (2005) are most relevant to the

current study. They all show that the relationship between IPR intensity and income

exhibits a U-shaped pattern,1implying that for low-income countries these two vari-

ables are negatively related, but for high-income countries they are positively related.

The former result appears to be counter-intuitive as we would normally expect the

relationship to be monotonically positive. The purpose of this paper is therefore to

propose a simple theoretical model to explain this seemingly paradoxical empirical

f‌inding.

The theoretical papers on IPR are, on the contrary, more abundant and include

those by Helpman (1993), Lai (1998), Yang and Maskus (2001), Glass and Saggi

(2002), Parello (2008) and Sener and Zhao (2009). All these papers have one assump-

tion in common, namely, they all follow Krugman’s (1979a) model by assuming that

innovation takes place only in the North and imitation only takes place in the South.2

While this assumption is convenient, it may deviate from the reality, since many

developing countries, including China and India, are likely to engage in both innova-

tion and imitation. Moreover, imitation may serve as a stepping stone leading to

innovation, for through imitation, the South may be able to build up its capability

* Hwang: National Taiwan University, Department of Economics, National Taiwan University, No. 1,

Section 4, Roosevelt Road, Taipei 10617, Taiwan. Tel: +886-2-3366-8367; E-mail: echong@ntu.edu.tw. Wu:

Department of International Business, Lunghwa University of Science and Technology, Taoyuan, Taiwan.

Yu: Faculty of Business, Chu Hai College of Higher Education, Hong Kong. Part of the work was com-

pleted while the f‌irst author was visiting the Department of Economics and Finance, City University of

Hong Kong. He would like to thank the department for its hospitality.

Review of Development Economics, 20(1), 138–151, 2016

DOI:10.1111/rode.12205

©2015 John Wiley & Sons Ltd