Patent Protection, Technological Efforts, And Exports: An Empirical Investigation

This study proposes an incremental perspective concerning the channel through which countries gain from strengthening patent rights (PRs). We hypothesize that the patent rights influence the technological effort of a country that further stimulates its exports. It is not evident in previous studies how the changes in innovativeness translate into economic growth. In this paper, we study the impact of PRs on the technology efforts of a country and their contribution to high-technology exports. We combine the technology efforts made by countries and their contribution to high-technology exports in order to explain a mechanism through which strong PRs contribute to economic growth, as such a channel remains unexplored in the current literature. This study adds to the literature by computing a technology effort index via principal components analysis to quantify the technological efforts made by a country, which we then use to measure its contribution on exports. Using panel data analysis on 67 countries from 1996-2014, this paper finds that patent rights influence the technological effort of a country that further stimulates its exports. This finding has implications for the role of the patent system in technological development and export orientation, both of which are important factors in economic growth. We also examined the interaction between source countries' technology efforts and the destination countries' patent rights environment. The interaction effect has a negative influence on exports in high income countries, suggesting that stronger destination patent rights enable source country firms to better exploit market power if they possess greater levels of technology. The results also demonstrate a positive relationship between a destination country's patent protection and export flows, which may be reduced if the technological efforts of a source country enable exporters to exercise market power. This result indicates that patent rights help attract exports from other countries – that the expansion and enforcement of global PRs play a significant role in the economic development of economies by helping to draw high technology products to both high-income and middle-income countries.