The role of intellectual property rights in a directed technical change model

Oscar Afonso and Manuela Magalhães

International Journal of Finance & Economics, 2021, vol. 26, issue 2, 2142-2176

Abstract: We propose a two country, Innovator and Follower, directed technical change model between tradable and nontradable sectors. The Innovator performs innovative R&D and the Follower adopts the available technological knowledge. Substitutability between sectors, scale effects, international IPRs protection and R&D productivity determine the economic growth and the technological‐knowledge bias, which, in turn, affects relative prices and wages. Wages are higher in the Innovator, namely in the nontradable sector under strong substitutability. Technological‐knowledge and intra‐country wage inequality are biassed towards the tradable sector, the effect being reinforced by positive IPRs protection and substitutability. Real exchange rates accommodate the Balassa‐Samuelson proposal and increase with positive IPRs protection and substitutability. The effect of IPRs on the steady‐state growth rate is ambiguous, depending on the substitutability. Theoretical results are also influenced by labor movements and are confirmed by a calibrated exercise for 11 developed/Innovator countries and 11 developing/Follower countries, and by the empirical evidence.

Date: 2021
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