Global Intellectual Property Rights and Economic Growth

Yueh, Linda Y. | January 1, 2007

This article argues that the global intellectual property rights regime will affect the economic growth prospects of developing countries. The trade-related aspects of intellectual property rights (TRIPS) provisions under the WTO articles will eventually cover all of its member countries, currently at around 150 and representing 95% of world trade. It is a significant change in the global legal system with implications for economic growth. One of the key mechanisms generating convergence in global economic growth rates is the transfer of technology from developed to developing countries. According to the neoclassical models of growth, technology is embodied within the capital that moves from rich to poor countries through a process of seeking higher returns found in poor countries on account of diminishing returns to capital in developed economies with higher capital stock. Convergence in growth rates is predicted as a result of the free transfer of technology embodied in foreign direct investment (FDI) that enables developing countries to imitate and adopt the technology of developed countries without having to duplicate the process of innovation. The evidence of global growth in the post-war period does not support this prediction. Even before the advent of TRIPS in 1995, technology transfers from rich to poor countries were not costless. The transfer often required payment at monopoly rates created by intellectual property rights (IPRs) in developed countries. IPRs create an artificial monopoly to promote innovation but also make the dissemination of the knowledge costly. For developing countries, there had been avenues of adopting technology without paying monopoly rents, such as through compulsory licensing. Prior to TRIPS, the international legal principles concerning IPRs respected sovereignty and independence which gave developing countries greater latitude to acquire technology without paying the full cost of IPRs. The existence of costly transfers prior to TRIPS would contradict the prediction of convergence in the global economy in addition to other factors that inhibit the absorption and transfer of technology; a factor that is critical to a sustained rate of economic growth. After TRIPS, the process would likely slow further. Using evidence on income dispersion in the global economy and the evolution of global IPRs, this paper argues that the IPRs regime has contributed to a divergence in growth rates among countries by making technology costly, which increases the cost of production for developing countries and inhibits their ability to “catch up.” There could also be a countervailing effect where an international rules-based system facilitates more FDI to developing countries. With TRIPS due to encompass the majority of the world’s nations in the coming years, the implications for economic growth are indeed notable. O34, O40, K33.