Economic development Essay

Smith (2002) follows the research structure in 1990 but narrows down the research range from country-level data to industry-level data. This paper provides further analysis from 1972 to 1992 at five-year intervals and focuses on three specific patent-sensitive industries – Biological products, Medicinal and Botanicals, and Pharmaceuticals. The results in the paper support the hypothesis of the previous studies in 1999. Moreover, one of the mainly differences between this paper and the previous studies, as mentioned above, is the measure of patent rights index. The level of patent rights protection varies from countries to countries. In practice, there are two methods to measure the patent rights index – Rapp-Rozek index and Ginarte-Park index. Maskus and Penubarti’s research (1995) and Smith (1999 & 2001) all adopt Rapp and Rozek index but this paper measures patent rights index by Ginarte-Park index. In fact, two patent rights indices have been used in many empirical literatures about patent rights. The Rapp and Rozek index will be measured by six features – â€Å"coverage of inventions, examination procedures, and term of protection, transferability of rights, compulsory licensing, and effective enforcement against infringement† (Smith, P. J. 1999). On the side, the scores of Ginarte and Park index will be determined by five features – membership in international treaties, coverage, and restrictions on patent rights, enforcement and duration of protection. The sum score is zero through five. The higher total points indicate stronger patent protection (Park, W. G. , 2008). Smith’s finding verifies that there is no significant difference between using two patent rights indices. Notwithstanding, comparing with Rapp and Rozek index, Ginarte-Park index which merger the important international patent laws and agreement into the evaluation is used in this paper. Rafiquzzaman (2002) examines the amount of export of Canada to 76 countries in 1990 according to 22 categories in 2-digit level of the Standard Industrial Classification (SIC) Codes. The explanatory variables are gross national income, population size, patent rights, tariff rate and distance. It is worth noting that Rafiquzzaman compare the results of two different index of patent right as well and then find the correlation between Rapp-Rozex index for 1984 and Ginarte-Park index for 1990 is 0. 78. In other words, using either Rapp-Rozex index or Ginarte-Park index to estimate country’s patent protection has no significant difference, as Smith’s finding. The conclusion of this study provides support for verifying Smith’s hypothesis in 1999. That is to say, an increase in patent rights often leads in an increase in Canada’s exports, in particular if importing countries have high economic development levels and strong threats to imitation. After reviewing the theoretical research and existing empirical literatures, the effect of patent rights might be positive or negative, even be ambiguous. It might depend on some characteristics of importing countries – country’s economic developments levels, strength of patent rights and local imitation pressure, for example. This paper attempts to extend Smith’s research in 1999 but use different database. Besides, this paper adopts up-to-date data (2005) to examine the relationship between the strength of patent right and international trade which does the result as the same as Smith’s research in 1999, 2001, and 2002. This research structure can help governments have an overall picture to analyze the relationship between economic growth and the strength of patent rights. As discussed above, effects of patent rights are defined in early empirical studies are market expansion and market power. In principle, market power and expansion effects can be briefly explained in two aspects – demand and supply in economics. The market expansion effect can be defined that market shares of patent holders will rise when the patent rights protection in importing countries is improved. The advanced rights of patent generate higher costs of imitation to competitors and encourage, promote and attract more foreign technology to importing countries. In other words, less imitation not only implies an increased demand for exports because of lower costs, but also infers an increased supply. It is because exporters save anti-imitative costs such as monitor costs, enforcement costs and costs to prevent copying and imitation. In a standard demand and supply model, cost reduction leads a right shift both in demand and supply line. On the other hand, improved patent rights protection might produce monopolistic market power and contribute to a more concentrated market because of higher technical and cost barriers to entry. From the standard monopoly model, it can be seen that the sold quantity of monopolistic enterprises would be always less than the society optimum quantity in order to sell products at prices plus monopoly mark up. There is a monopolistic tactics to maximize firms profit is to beat selling quantity down in order to raise price. Hence, market power effect will confer more market power on the patent holders and then result in a reduction of the amount of export. In this article, we collect data sets from US exports and study three forms of bilateral trade equations to test three hypotheses about the relationship between exports and patent rights in relation to income development, imitative abilities, and threat of imitation, respectively. The first hypothesis which examines the relation between patent rights and country development is based on Maskus and Penubarti’s research (1995) and Smith’s research (1999). The other two hypotheses are based on Smith’s research (1999) to take the degree of threat of imitation and imitative abilities into account. Hypothesis 1- interaction between exports and patent rights with relation to country’s level of development In this section, I suppose a country’s development of patent rights positively respond to its economic development. We assume that countries with higher economic development would pay more attention on patent reform. In addition, higher-income developed countries possess much financial resources than lower-income countries. As imagined, higher-income developed nations are likely to control up great majority expenditure and performance on research and development in the world. Otherwise, developing countries take ambiguous attitudes towards the world’s patent reform. As discussed above, a fierce debate originates in some doubts with regard to effects of patent protection from developing countries. A patent reform in developing countries might attract foreign investment and international trade, but it might restrain economic development in local industry as well. Besides, lower income economies seem to relatively lack non natural resources such as financial and technological resources. It is said that higher income countries possess some degree of market power because of these unique competitive advantages such as patent, financial resources or higher technical capacities. Hence, referring to above assumptions, higher income developed nations pose stronger patent protection than lower income countries have.