The effect of patents on trade

Authors: Paul Jensen (University of Melbourne), Alfons Palangkaraya (Swinburne University of Technology) and Elizabeth Webster (Swinburne University of Technology)

In contrast with quotas and tariffs, it is hard to deduce whether fewer rules and less gate-keeping over intellectual property rights will increase or decrease trade in goods. The dominant view is that anticipation of imitation reduces exporters’ incentive to export goods to jurisdictions with ‘weak’ patent regimes. This paper uses two new measures of the patent system to estimate its effect on would-be exporters. We find evidence consistent with two effects. The patent system lowers trade in manufacturing goods– in the main by blocking patentee’s ability to embody their inventive idea into exports but in a smaller way by permitting other incumbent firms to legitimately imitate the invention.

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