The Global Effects of Intellectual Property Rights: Measuring What Cannot Be Seen

Despite the obvious practical importance of the question, economists did not attempt until the 1990s to assess empirically the effects of international variations in the strength of IPRs. Without such evidence, the field lay open to strong claims on both sides of the debate—a situation that remains largely true today. Thus, for example, advocates of global harmonization of strongly protective standards made powerful assertions about the trade-distorting effects of weak and variable IPRs in order to buttress the case for their inclusion in the Uruguay Round negotiations. Their opponents argued that strengthening global IPRs would cause monopolization of trade and technology transfer, leading to widespread competitive abuses. These arguments clearly were based on strong assumptions with limited systematic evidence available to support any of them. The situation was even more stark than the earlier acute shortage of information on how patent systems affect innovation and welfare, which had prompted Priest (1986, 19) to lament, “The ratio of empirical demonstration to assumption in this literature must be very close to zero.” In the last decade, a number of economists have made strenuous efforts to help close this information gap. Some analysts developed numerical indices to characterize the strength of patent rights across nations. These in turn were used to study the impact of patent regimes on international trade, FDI, and technology licensing. This chapter reviews the evidence compiled in such studies; it concludes that, in the main, the strength of IPRs is a significant and positive determinant of international commercial activity. Stronger global IPRs could enhance the dynamic efficiency with which resources are allocated internationally, which should help mitigate any adverse distributional consequences.