Patent Protection, Financial Development and Economic Growth

Shiyuan Pan, Mengbo Zhang and Heng-Fu Zou ()
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Shiyuan Pan: Center for Research of Private Economy and School of Economics, Zhejiang University
Mengbo Zhang: School of Economics, Zhejiang University

No 589, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: This paper theoretically and empirically investigates the effects of patent protection on innovation and economic growth by looking at the interaction between patent system and financial system. On the one hand, patent protection accelerates economic growth through enhancing the value of innovation. On the other hand, it lowers the demand for capital by increasing the price, thereby weakening the learning-by-doing effect and raising the cost of production. It follows, in turn, patent protection stifles innovation. As a consequence, a non-monotonic relationship between patents and economic growth could be seen. In addition, the degree of patent protection that maximizes the growth rate is decreasing with the degree of financial development, when the interaction between patent system and financial system is considered. Our cross-section and panel regressions support our theoretical results.

Keywords: Patent Protection; Financial development; Innovation; Economic Growth (search for similar items in EconPapers)
JEL-codes: G21 O31 O34 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011
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