This chapter reviews available economic theories and empirical evidence about the potential roles intellectual property (IP) rights play in generating or reducing economic inequality, emphasizing international data. Basic evidence demonstrates the simultaneous growth in internal income inequality across countries and increasing IP protection in the prior 25 years. It is tempting to assign causality from IP to inequality but doing so confidently is challenging and has not yet been accomplished systematically. Through encouraging technology diffusion, global IP reforms likely contribute to convergence in average incomes between advanced economies and select emerging and developing countries.

The globalized system of protection for intellectual property rights continues to evolve, from the TRIPS Agreement and WIPO treaties to modern regulation-based preferential trade agreements. All these mechanisms require substantive strengthening of intellectual property (IP) rights, particularly in emerging and developing countries. This chapter surveys evidence on how these policy reforms have affected key economic variables, ranging from early studies of growth, research and development, and innovation to new research on trade, foreign investment, and production and knowledge networks. The evidence regarding growth and innovation does not paint a clear picture, largely due to difficulties in measurement and estimation. Considerably more research, especially at the microeconomic levels, is needed to understand the channels through which innovation is encouraged or discouraged. Recent work on how detailed trade flows and firms react to rigorous and globalized protection has unearthed numerous subtleties in the microeconomics of IP, trade, and technology transfer. This research is becoming highly granular. For example, the status of patent rules in importing countries affects the decisions of foreign firms to patent and export to those locations. Another point is that preferential trade agreements with “TRIPS-Plus” IP standards tend to expand the export of detailed, patent-sensitive goods to external countries. Patent laws also influence the development of global innovation networks.

In this chapter, we reconsider the key lessons presented by more than two decades of empirical research on international knowledge flows. We begin by reviewing some of the key empirical findings and policy lessons from that literature. We then build on this review by pointing out the importance and uneven distribution across developing countries of absorptive capacity, which may help explain the uneven diffusion of knowledge across these countries. We also consider the implications of growing R&D globalization, the potentially declining importance of international manufacturing value chains, the rise of global trade in services, and the new opportunities opened up by AI-enhanced learning technologies.

Introduction

In its deliberations regarding development of the Sustainable Development Goals (SDGs), the United Nations (UN) working group considered various issues involving science and technology (S&T) initiatives. In general, the working group viewed technology development and transfer as a way to “strengthen and enhance means of implementation and global partnership for sustainable development.” The inclusion of S&T to help achieve SDG is sensible because access to, and effective implementation of, knowledge and technical information are fundamentally important sources of economic growth (Keller, 2004). They are equally central in meeting public needs, such as adaptation to climate change, water safety, and public health (Maskus and Okediji, 2014). Thus, S&T initiatives speak both to economic development and sustainability, making them a suitable candidate for inclusion in the SDG in some form.

Unfortunately, most of the cases in which technology was listed in the UN working documents involved broad aspirations, rather than clearly articulated targets. This lack of policy specificity is unsurprising because technology transfer and investments in research and development (R&D) are largely private decisions, although significant expenditures are also undertaken by public authorities and their grantees. In this context, such words as promote and encourage are appropriate in this area because the primary objectives may simply be to improve market and governance conditions to induce firms to disseminate technologies and undertake R&D programs that are conducive to economic and social development. Such exhortations are difficult to assess numerically, however.

Because of this limited information, this chapter articulates specific objectives that both facilitate the broad objectives of the SDG and are amenable to reasonable cost-benefit calculations. I select two cross-cutting objectives that, if achieved, could offer strong facilitation to technology diffusion, access to knowledge, and growth of technological capacities in developing countries.

Introduction

Analytical and empirical work in economics is paying increasing attention to the vital questions of encouraging innovation and diffusing information in a world where creativity and knowledge lie at the foundation of economic progress. There are numerous complex and fascinating problems for economists to grapple with in the general area of technical change and growth. These range from deep mathematical treatments of the nature of economic growth in the presence of non-rival knowledge goods, to extensive empirical analysis of the role of information acquisition in economic development, international trade, and public economics.

Inevitably, this attention to the growing importance of the knowledge economy places growing emphasis on the determinants of innovation and learning, especially intellectual property rights (IPR). A burgeoning wealth of economics literature seeks to understand the dynamic incentive effects of IPR, the problems they raise for competition, their significance for international technology transactions, and how they fit into broad strategies for economic development.

In this environment, one would expect that economics departments would begin to offer courses dedicated to studying such issues specifically within the context of IPR. Certainly, the formal study of IPR has become central in law schools and management programs in business administration colleges. However, they have yet to take on a significant role in the curriculum of economics departments in the United States, either at the undergraduate or graduate level.

Describing the problem: weak IPR

Many developing countries, including certainly the poorest economies, do not adequately protect intellectual property rights (IPR). While laws and regulations may offer comprehensive protection on paper, the ability and willingness of governments to enforce patents, copyrights, plant variety rights and trademarks are almost completely absent. In part this situation reflects simple political economy: the vast majority of firms who own IPR in poor countries are foreign. The problem also reflects the strategic view that weak IPR may help governments gain cheap access to, say, patented medicines and assist domestic firms to imitate international technologies without paying license fees.

These are important concerns and a balance needs to be struck in establishing IPR policies that are sensible for development. However, a weak system of IPR raises critical problems. First, poor enforcement invites trademark counterfeiters to sell unsafe goods, which may be damaging to public health. Recent WHO estimates find that counterfeiting of medicines is rising sharply and that globally fake pharmaceuticals amount to perhaps $32 billion, with a portion of this amount being dangerous. Second, weak IPR limit the ability of domestic entrepreneurs and artists to create and sell new products. Survey evidence suggests that this problem makes it difficult for up to 4–5 percent of the population to overcome poverty in such countries as Indonesia (Luthria and Maskus 2004).

Introduction

A central concern among policymakers is to understand how the shift toward stronger protection of intellectual property rights (IPRs) may affect access of developing countries to advanced proprietary technologies from firms in developed countries. Developing countries, including least-developed countries, place considerable hope in the power of foreign technology to improve the productivity and growth performances of their economies. Indeed, a key plank of the Doha Declaration calls on developed countries to find means of encouraging technology transfer to the least-developed nations, as specified in Article 66.2 of the Agreement on Trade-Related Aspects of Intellectual Property Rights at the World Trade Organization.

The extent to which international technology flows would increase as a result of strengthening IPRs depends importantly on the state of access to technological information. Such access is determined by a variety of factors. Impediments may come from many sources in the recipient country, including weak domestic absorption capacities, poor infrastructure, restrictions on inward technology, trade, and investment flows, and inadequate regulatory systems. In this context, strengthening intellectual property (IP) protection could play a positive and important role in mitigating the costs such factors raise for investors and thereby expanding technology flows. It should be evident from this brief description, however, that simply strengthening IPRs alone cannot suffice to improve access significantly. Rather, the intellectual property regime needs to be buttressed by appropriate infrastructure, governance, and competition systems in order to be effective.

One should note, however, that patents can block technology transfers under certain circumstances.

In recent years the world has moved sharply toward successive strengthening – and harmonization – of intellectual property protection. There has emerged, at an unprecedented level, both a globalized regime of private rights in information and new foundations for a basic international system of innovation. This new system will have profound implications for the nature of such processes as innovation, technology transfer, market competition, and economic development. It also raises essential and sometimes disturbing questions about potential impacts on the ability of governments to provide critical public goods, both within and across countries. Such goods include public health, nutrition, education, environmental protection, cultural identity, and other elements of social importance that must rely increasingly on the exercise of private rights over technical inputs.

It is possible that the globalized intellectual property regime will improve markets for trading information internationally by encouraging invention and resolving inherent failures in technology transactions. It is also conceivable that the system will throw up high roadblocks in the path of follow-on innovation, competition, and the attainment of public goods. These questions are deep and complex and require sustained analysis.

The clear difficulties of this task constitute one of the main reasons that the editors of this volume decided to organize the Conference on International Public Goods and Transfer of Technology under a Globalized Intellectual Property Regime in April 2003 at Duke University.