Working Paper No. 05-10

Intellectual Property Rights, Factor Proportions and the Pattern of Trade in Developing Countries
Lei Yang
October 2005, revised: October, 2006

ABSTRACT

This paper studies the effects of Intellectual property rights (IPRs) on the pattern of trade in developing countries. Intellectual property rights, as a type of institutional endowment, could potentially change the pattern of trade through influencing the efficiency of technology transfer and contract enforcement. I develop a theoretical model in which a strengthening of IPRs improves technology transfer through licensing, which expands exports. To test for this, I construct a measure of patent intensity across industries to capture the significance of intellectual property rights. I find, both theoretically and empirically, that stronger IPRs expand exports in developing countries. The extent of this effect differs across industries depending on the importance of intellectual property rights in the production process. Moreover, I find that that the effects of stronger IPRs on exports in patent-intensive sectors are larger in developing countries with high absorptive abilities. This is even true after controlling for other institutional effects and alternative determinants of international trade.

JEL classification: D23, F13, F14, O34
Keywords: Intellectual Property Rights, International Trade, Factor Proportions

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