Intellectual property rights and foreign direct investment

This paper develops a product cycle model with endogenous innovation, imitation, and foreign direct investment (FDI). We use this model to determine how stronger intellectual property rights (IPR) protection in the South affects innovation, imitation and FDI. We find that stronger IPR protection keeps multinationals safer from imitation, but no more so than Northern firms. Instead, the increased difficulty of imitation generates resource wasting and imitation disincentive effects that reduce both FDI and innovation. The greater resources absorbed in imitation crowd out FDI. Reduced FDI then transmits resource scarcity in the South back to the North and consequently contracts innovation.     

IPR protection vs. innovation subsidy: What is the choice for the emerging South?

In this paper, we use a classical variety-expanding growth model to analyze the policy or institutional-arrangement choice for the Southern government who faces the tradeoff between imitating Northern innovation without cost and encouraging domestic innovation. We assume that the Southern government fully respects the principle of non-discrimination and hence treats both imitations, i.e., imitation of Northern innovation and imitation of domestic innovation, equally. For a given state of the economy, we explicitly and uniquely establish an optimal degree of intellectual property rights (IPR) protection for the South. Then, we find that there is a complementary relationship between optimal IPR protection and the innovation subsidy policy, which implies that they form an effective policy mix, hence offering a useful insight for avoiding ineffective policy conflicts widely occurred in real-world economies.     

The North’s intellectual property rights standard for the South?

We build a multi-sectoral North-South trade model to analyze international intellectual property rights (IPR) protection. By comparing the Nash equilibrium IPR protection standard of the South (the developing countries) with that of the North (the developed countries), we find that the former is naturally weaker than the latter. Moreover, we show that both regions can gain from an agreement that requires the South to harmonize its IPR standards with those of the North, and the North to liberalize its traditional goods market. This demonstrates the merits of multi-sectoral negotiations in the GATT/WTO.     

Patent protection in the South: Is there a case for nondiscrimination?

We evaluate in terms of equilibrium world welfare the principle of national treatment (NT) in Southern patent protection. We use a variety-expansion model with R&D in North and South, and with Southern imitation targeted at both foreign and domestic innovations. In the short-run of Northern economy, NT can never dominate discrimination in the sense of generating a higher world welfare, and it tends to be dominated by discrimination. In the long-run of Northern economy, we obtain three results. First, under free trade, NT is favorable to the North while discrimination is favorable to the South. Second, if the entry cost of Northern R&D market is high and the strength of protection for Northern innovation under discrimination is not that weak, then NT is strictly dominated by discrimination, no matter whether trade barriers exist or not. Third, if trade barriers are sufficiently large, then NT dominates discrimination only when the strength of protection for Northern innovation under discrimination is weak; otherwise, NT is strictly dominated by discrimination.     

Local conditions and economic growth from South–South FDI

This paper examines growth in Southern economies arising from FDI from both Southern and Northern economies. We explore local conditions that are necessary for growth. A system GMM estimator is used to distinguish between South–South and North–South FDI flows. The highly skilled labour and strong property rights protection required to achieve growth from Northern FDI are not necessary local conditions for achieving growth from Southern FDI. It is strong law and order that emerges as a critical necessary condition associated with positive growth following Southern FDI. The results indicate a distinctive impact of local conditions in activating growth from FDI.     

The asymmetric effects of tariffs on intra-firm trade and offshoring decisions

This paper studies the effects of tariffs on intra-firm trade. Building on the Antràs and Helpman (2004) North–South theoretical framework, I show that higher Northern tariffs reduce the incentives for outsourcing and offshoring, while higher Southern tariffs have the opposite effects. I also show that increased offshoring and outsourcing imply a decrease in the ratio of Northern intra-firm imports to total imports, an empirically testable prediction. Using a highly disaggregated dataset of U.S. (the North) imports and relevant U.S. and foreign tariffs, I find robust evidence to support the model's predictions.     

Some Bad News Is Good News for Foreign Investors: The Case of Intellectual Property Rights Infringement in China

Despite China's attractiveness to foreign investors, intellectual property rights (IPR) protection in China has not caught up with international standards. This research aims to quantify the relationships between IPR violations, government effectiveness, and foreign direct investment (FDI) inflows in the context of China. Our econometric modeling and estimation based on provincial level data over 2002‐2012 show that in an early development stage of law and regulatory enforcement, the bad news of a rising number of IPR dispute cases signals the good news of an improvement in law and regulatory enforcement, which encourages IPR owners to raise legal cases. By contrast, in the later development stage, when law and regulatory enforcement has become much more effective, the bad news of a rising number of IPR disputes manifests itself as very bad news. Furthermore, this study confirms that FDI inflows enhance IPR protection through improving government effectiveness, and government effectiveness is one of the key factors promoting FDIs. © 2016 Wiley Periodicals, Inc.     

Trade and inequality in developing countries: a general equilibrium analysis

Developing and newly industrialized countries that have experienced the sharpest increases in wage inequality are those whose export shares have shifted towards more skill-intensive goods. We argue that this can be explained by technological catch-up. We develop this insight using a model that features both Ricardian and endowments-based comparative advantage. In this model, Southern catch-up causes production of the least skill-intensive Northern goods to migrate South (where they become the most skill-intensive Southern goods). This raises wage inequality in both the South and the North. We provide empirical evidence that strongly supports this causal mechanism: Southern catch-up exacerbates Southern inequality by redirecting Southern export shares towards more skill-intensive goods.     

Outsourcing and Competition Policy

We analyze optimal competition policy by a Competition Agency (CA) in a model with two countries, North and South, were a final good is produced by Northern oligopolistic firms using an input that can either be produced within the firm (vertical integration) or outsourced to Southern oligopolistic producers with lower labor costs (outsourcing). In the case where the final good is only consumed in the North, a CA in the South would optimally appropriate outsourcing rents through restrictions on the degree of competition among domestic firms. If the final good is consumed in both countries, we find that optimal competition policy in the South is marginally affected by the share of Southern consumption, leaving relatively important incentives to engage in rent-shifting. For a high enough share of Southern consumption, however, the interaction between the Northern and Southern CA is shown to be of the Prisoner’s Dilemma type, whereby the Nash equilibrium is Pareto-suboptimal and mutual cooperation on competition policy is globally desirable.     

Innovation and imitation in a model of North–South trade

This paper analyzes the growth and welfare effects of trade openness within a North–South framework that predicts the observed intra-industry trade and the North–South specialization over different quality vintages within product lines. The model is used to re-examine the relationship between the innovation in the North and the imitation lag of the South and to address the implications of the (weak) international Intellectual Property Rights (IPR) protection. When the imitation technology is modeled as a function of increasing complexity of targeted products, opening to trade increases the growth rate and welfare of both regions, but results in a larger North–South quality gap. While a full catch-up is possible with no protection of ideas flow, but also with no trade, the quality gap is always positive under full economic integration including trade in goods. Stronger IPR protection increases the gap and has a negative effect on the world growth rate and welfare.     

Policy Instruments,Patents, and International Technology Diffusion in a North-South Duopoly

This article analyzes the relationship between policy instruments and technology diffusion in a North-South duopoly within an inter-temporal model. The North benefits from a monopoly period with a new technology. At the end, there is then technology diffusion from the North to the South. The Northern firm files a patent in order to slow down the diffusion. This article studies the impact of several policy instruments. The results show that the Northern government’s policy instruments slow down technology diffusion, except for an import quota. The Southern government’s policy instruments accelerate the new technology diffusion.     

Export-promoting production subsidies and the dynamic gains from experience

This paper examines export-promoting production subsidies in a dynamic product-cycle model with learning by doing and spillovers from experience. History dictates that the South is less experienced than the North and, thus, produces less advanced goods. Non-uniform Southern export promoting production subsidies applied to a small set of marginal industries that are on the verge of being internationally competitive, generate conventional static benefits for the South and costs for the North. Since such an industrial policy expands the South's range of production, it ultimately enhances Southern learning. The South's rate of production and technology transfer and the North's rate of innovation both increase, creating dynamic benefits for each country. While the South must gain overall, the North will also gain if the dynamic benefits outweigh the static costs.     

South-north trade and southern growth: Bleak prospects from the structuralist point of view

A three-country, three-commodity model is developed to illustrate the dynamics of growth among the ‘North’, the ‘South’ and ‘OPEC’. One conclusion is that the Southern growth rate will be increased by faster growth of Northern capital, with a steady state response coefficient of unity. However, if the steady state is perturbed by increases in Northern productivity or the oil price, then the coefficient becomes less than one. In the short run, higher capital flows from North to South increase the former's growth rate but may have only marginal impact on growth in the South. Higher productivity in the South will slow its growth rate and reduce its terms of trade when the Engel elasticity of Northern demand for its exports is less than one. These and other results follow from surplus labor in the South and its dependent position in international trade, from which it will be difficult to escape.     

Environmental Policy,North-South Trade and FDI

We analyze trade between two countries, called the North and the South. There is one firm in each country and production costs are lower in the South. To serve foreign markets firms may export or engage in FDI. Both countries set tariffs on imported goods. We find that the implementation of an environmental policy by the South may affect the location decision of the Southern firm. When only the North sets an environmental tax, firms engage in FDI if the difference in costs between the two countries is low, otherwise the South exports and the Northern firm engages in FDI. If the South also sets an environmental tax, this does not restrict FDI by Northern firm, encourages FDI by the domestic firm, reduces its environmental damage and increases joint welfare. Finally, in equilibrium the South decides to implement an environmental policy and both firms engage in FDI.     

A model of endogenous growth that elucidates the complexity of South–North convergence

This North–South model of Schumpeterian endogenous growth combines a market, productivity and knowledge effect. Depending upon the interaction of these effects, various convergent and divergent South–North growth paths occur: for example, full or partial convergence of the Southern technology level to the Northern one, conditional convergence or divergence depending upon the Southern initial technology level and absorptive capacity, higher or lower as well as decreasing or increasing growth rates during the phase of catching up, and equal or higher growth rates of the South compared to the North after catching up. This set of growth paths can better explain the diversity of the empirical observations for economies at different income and technology levels than those generated by existing models. In this new model, convergence based on North–South trade and associated flows of patents (innovations) is guaranteed if the knowledge effect dominates the productivity effect. A larger Southern market expands the area of convergence and can prevent divergence. Not only a larger Southern market, but also a higher Southern steady state growth rate benefit the North so that convergence is desirable for both, the South and the North.     

Product development,imitation and economic growth: A note

Abstract

A dynamic North – South general equilibrium model of international product cycle is presented in this paper. The qualitative effects of strengthening intellectual property rights (IPR) on the balanced growth rate of the world economy is studied in two alternative cases: (i) imitation is direct from North to South; (ii) multinationalization is the channel of product transfer.     

Sexual-harassment liability in 1998—goods news or bad news for employers and employees?

In June 1998 the U.S. Supreme Court issued three separate rulings regarding workplace sexual harassment. In an apparent victory for employers, the court ruled in one case that a victim must actually suffer a tangible loss (i.e., a demotion or unwelcome transfer) to establish a case for quid pro quo harassment. The court affirmed, moreover, that employers can absolve themselves of liability in hostile-environment cases by establishing a meaningful and effective policy against sexual harassment. Absent a meaningful policy, however, employers will be liable for a hostile environment created by supervisors. Thus, in another case, the court found an employer liable for workplace harassment because the employer failed to disseminate its existing policy and to follow its terms. Finally, in a same-sex harassment case, the court rejected the notion that egregious sexual harassment is per se unlawful, leaving open the possibility that a harasser who treats men and women equally, no matter how badly, could be found not guilty of unlawful behavior. Still, the court made it clear that an employer's best defense against supervisors' sexual-harassment behavior is an effective prevention policy. Consequently, employers should draft a policy that (1) defines sexual harassment; (2) states the company prohibits such conduct; (3) provides a clear procedure for submitting claims, including the names of individuals involved in the resolution process; (4) states that those who complain or cooperate with an investigation will not be retaliated against; and (5) is disseminated to all new employees when they join the company, reissued to all employees each year, and posted in a conspicuous location in the workplace.     

Do High‐Skill Immigrants trigger High‐Quality Trade?

This paper investigates the links between product quality and the pro‐trade effect of ethnic networks using a large panel on bilateral stocks of immigrants with information for 19 OECD destination countries and 177 origin countries. In line with the approach of Rauch and Trindade, we classify traded goods according to their quality level and separately estimate pro‐trade elasticity of ethnic networks for each subgroup. We allow for heterogeneity of immigrants according to both the level of per capita income of their country of origin and their education level. Our findings suggest that the trend of the pro‐trade effect of immigrants over quality seems to be driven by the North–South specialisation across varieties for both supply and demand. Indeed, ethnic networks mostly facilitate imports of those varieties for which their countries of origin have a comparative advantage; as for exports, ethnic networks are more effective in promoting exports to their homeland of those varieties for which there is relatively higher demand. We show that the same trend applies to products characterised by the same degree of differentiation according to the classification proposed by Rauch and – given their lower liquidity constraints and advantages in human capital – we find a greater impact of high‐skilled migrants consistent across all quality levels.     

Indicators of Absorptive Capacity and Import‐induced South–North Convergence in Labour Intensities

We hypothesise that North–South trade is associated with knowledge spillovers that create labour productivity gains depending on various aspects of Southern absorptive capacity. We use the novel World Input–Output Database (WIOD) that provides bilateral and bisectoral panel data for 39 countries and 35 sectors for 1995–2009. We examine growth in relative South–North labour intensities (South–North convergence) for 31 industrialised source and eight emerging recipient countries. We find strong evidence that various components and individual indicators of absorptive capacity interact with imports of investment goods in such a way that the relative labour intensity is reduced. GMM and GLS estimations corroborate the results. Policies that improve various of the identified aspects of absorptive capacity are more promising than policies that select only one. Elevating the absorptive capacity of emerging economies to the maximum level in the world would halve the South–North gap in labour intensities within a couple of decades if it were solely achieved through the trade channel.     

The Trade Effects of the EU–Turkey Customs Union

In the present study we argue that the salient features of both the EU‐15 countries and Turkey are conducive to making the effects of the 1995 EU–Turkey customs union asymmetric among the incumbent EU countries. In order to support our argument we rely on a model in which trade involves the exchange of vertically differentiated products. This model generates the prediction that the more contiguous an incumbent country is to the joining country in terms of technological sophistication, the larger will be the crowding out of this country's exports to the other incumbent countries as a result of the CU expansion. Using a gravity model we estimate the effects of the customs union between Turkey and the EU‐15 by differentiating between exports from (a) lower‐technology EU‐15 countries (we term this group of countries ‘South’) to higher‐technology EU‐15 countries (the ‘North’), (b) North to South, (c) South to Turkey, (d) North to Turkey, and (e) Turkey to EU‐15. Our econometric results indicate that, in contrast to North's exports to the other EU‐15 countries (which have remained intact), the Southern countries’ exports to the other EU‐15 countries have declined as a result of the CU. Moreover, the extra penetration of the Turkish market by the EU‐15 countries has not been more favourable to the Southern group.