Intellectual property rights, technology transfer and exports in developing countries

Abstract

We develop a model to analyze one mechanism under which stronger intellectual property rights (IPR) protection may improve the ability of firms in developing countries to break into export markets. A Northern firm with a superior process technology chooses either exports or technology transfer through licensing as its mode of supplying the Southern market, based on local IPR policy. Given this decision, the North and South firms engage in Cournot competition in both markets. We find that stronger IPR would enhance technology transfer through licensing and reduce the South firm's marginal production cost, thereby increasing its exports. Welfare in the South would rise (fall) if that country has high (low) absorptive capacity. Excessively strong IPR diminish competition and welfare, however. Adding foreign direct investment as an additional channel of technology transfer sustains these basic messages.