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Patent Protection in a Model of Economic Growth in Multiple Regions

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Abstract

We study the effects of patent protection on economic growth in the ith region when this ith region is part of an aggregate economy of i = 1,…,N regions. The regulatory authority in the ith region attempts to curtail the monopoly power of patent holding input producers by requiring them to charge a price that is parametrically related to the unconstrained monopoly price. Our analysis generates three results. First, we show the manner in which the equilibrium growth rate of the ith region is related to the above mentioned parameter. Second, we demonstrate the impact that changes in the stringency of patent protection have on the ith region’s equilibrium growth rate. Finally, we explain why eliminating the monopoly distortion does not maximize social welfare in the ith region.

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Notes

  1. See Romer (2012, pp. 123-130) for a lucid textbook exposition of the Romer (1990) model. In what follows, we shall periodically refer to this textbook exposition to indicate the ways in which our analysis differs from the standard Romer (1990) model discussed in Romer (2012).

  2. See Batabyal and Nijkamp (2014a) for a recent study of Schumpeterian economic growth in N heterogeneous regions.

  3. As such, we are not interested in studying economic agglomerations per se in this paper. See Shi et al. (2010) and Barbero and Zofio (2015) for more on economic agglomerations.

  4. Consistent with standard usage of the word “region,” we are thinking of a region as a geographical entity that is smaller than a nation-state. Even so, it is important to understand that this is not the only possible use of the word “region.” Nation-states and, on occasion, supra-national entities such as the European Union, are also sometimes referred to as regions.

  5. In addition to these two precedents in the extant literature, note that because the individual regions in our model are closed, we can concentrate clearly on the effects of patent protection on regional economic growth and we do not have to concern ourselves with the endogenous determination of a common interest rate.

  6. See Rho and Moon (2014), Figueiredo et al. (2015), and the references cited in these two papers.

  7. A detailed analysis of interregional knowledge spillovers and their impacts on, inter alia, economic growth in multiple regions has recently been conducted by Batabyal and Nijkamp (2014b).

  8. It should be noted that if we explicitly modeled growth in the stock of human capital then, in addition to the differential equation describing the knowledge production function—see equation (4) below—we would have to work with a second differential equation delineating the temporal evolution of the stock of human capital. It would then not be possible to solve this more complex model using the techniques employed in the present paper and it may well be necessary to solve this more complex model using numerical methods.

  9. Having said this, we note that topics such as transport networks and population migration can also influence the economic growth rate of a region. For more on these topics, see Xie and Levinson (2009), Jiang et al. (2015), and Carlsson et al. (2015).

  10. See Jaffe (1986) and Asheim and Isaksen (2002) for additional details on interregional knowledge spillovers.

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Acknowledgments

We thank two anonymous reviewers, the Area Editor, and particularly the Editor-in-Chief Terry L. Friesz, for their helpful comments on three previous versions of this paper. In addition, Batabyal acknowledges sabbatical funding from RIT and financial support from the Gosnell endowment, also at RIT. The usual absolution applies.

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Authors and Affiliations

  1. Department of Economics, Rochester Institute of Technology, 92 Lomb Memorial Drive, Rochester, NY, 14623-5604, USA

    Amitrajeet A. Batabyal

  2. Department of Economics, University of Texas at San Antonio, One UTSA Circle, San Antonio, TX, 78249-0631, USA

    Hamid Beladi

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  1. Amitrajeet A. Batabyal
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  2. Hamid Beladi
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Correspondence to Amitrajeet A. Batabyal.

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Batabyal, A.A., Beladi, H. Patent Protection in a Model of Economic Growth in Multiple Regions. Netw Spat Econ 17, 255–268 (2017). https://doi.org/10.1007/s11067-016-9325-y

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