Effects of intellectual property rights and patented knowledge in innovation and industry value added: A multinational empirical analysis of different industries

Technological innovation drives long-term economic growth, so most countries attempt to provide an innovation-friendly environment that includes tightening protection of intellectual property rights (IPR). However, debate continues on whether strengthened IPR lead to technological development and economic growth: patents promote innovation by protecting appropriation from invention and disclosing knowledge to the public, but they also create excessive monopoly power that may impede further innovation.Using simultaneous equations with cross-country panel data from 12 countries and 3 industries (chemical, electronic, machinery), we estimated the direct effect of IPR on industry value added and the indirect effect of it through enhanced research and development (R&D). The bilateral role of IPR, as measured by patented knowledge, was used to distinguish different characteristics of industries as well as the positive and negative effects of IPR on innovation.Results suggest that IPR generally enhance industry value added, but the positive effect is mitigated with increased enforcement of IPR. Also, IPR enhanced R&D but showed a negative relationship with patented knowledge, suggesting that excessive propertization of knowledge may hinder sequential innovation. The positive role of IPR on R&D predominated in the chemical (discrete) industry and exerted negative effects in the electronic and machinery (complex) industries.