Abstract
Little is known about the impact of intellectual property rights (IPRs) on typically imitative self-employment. IPR laws have contrasting dual innovation creation and access effects on self-employment activity. The first effect is positive where strong IPR laws promote innovation and so create new opportunities for self-employment. The second effect is negative where strong IPR laws restrict access to innovation and technology used as inputs to self-employed businesses. Using a 33-country dataset over the period 1995–2000, we estimate the impact of IPR laws on self-employment, helping to fill the vacuum of empirical evidence that has plagued policy decision making in this area. We find that patent activity has a negative effect on self-employment. However, overall, we find that more extensive and strong IPR laws have a net positive effect on self-employment activity.
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Notes
See Martin (2002) for an overview.
The cross-derivatives ∂I/∂IP and ∂IP/∂I would be expected to be positive when innovation and external IP are complements and negative when they are substitutes.
It is customary to assume that the elements of the profit function are multiplicative so that ∂Y/∂I is positively related to the level of capital and labour in the business. This implies that returns from investing in innovation are less for small-scale firms that use less labour and capital. In addition, if firms face financial constraints then they may not have sufficient financial resources to invest in innovation.
These classifications are based on the following per capita income groups defined by the World Bank: low income, US$975 or less; lower middle income, $976–$3,855; upper middle income, $3,856–$11,905; and high income, $11,906 or more.
The only country in our sample to join Berne after the start of our sample period (1995) is Singapore which joined the treaty in 1998.
We also note that Burke et al. (2008) find a negative relationship between unemployment and persistence in self-employment.
Establishing a company in this context may be necessary to facilitate raising finance from business angels and venture capitalists. It also has the attraction of limiting the liability of the entrepreneur, to the amount they have invested in the business, in what may be a high risk venture.
The natural log transformation is used in the analysis since the self-employment rate is a non-negative random variable. Accordingly, the support of ln (S) is the entire real line meaning that no restrictions are required on the support of the disturbance term in estimating the model.
The idea underlying this test is that, if cov(x it , u i ) = 0, the estimates obtained from the fixed and random effects models, respectively, should not differ systematically since both estimators are consistent. In contrast, if cov(x it , u i ) ≠ 0, then the estimates will differ systematically (only the fixed effects estimator is consistent in that case) and the inference is that the random effects model is mis-specified.
The self-employment data, in fact, cover a longer time span. However, the estimation sample is constrained by the span of patent registrations data (1995–2000). We estimated models, with longer sample periods, by omitting the patents data, but these models failed the mis-specification tests.
A referee made the valid point that these are luxury goods the consumption of which may be expected to be (positively) correlated with wages. Therefore, these goods could pick up some of the opportunity cost effects of wages on self-employment. To test this idea, we therefore looked at the sample correlations between the IPR/luxury goods and wages. However, with the exception of cable TV (ρ = −0.253; p value = 0.019), these correlations were statistically insignificant; also, the sign of the correlation in the case of cable TV is the opposite of what would be expected if the variable was measuring part of the wage effect. This gives us some confidence that the effects being picked up by the IPR-related goods are not related to the opportunity cost of wages.
i.e., 100(e0.134 − 1) and 100(e−0.274 − 1), respectively.
Many republics arose from the over-throw of a monarchy or totalitarian regime (e.g., France, Germany, Italy and Romania) or as a result of the country gaining independence from a colonial ruler (e.g., US, Iceland, Ireland and Singapore). These political conditions may provide fertile ground for a heightened desire for independence across the population which, in one sense, could be expressed through a higher incidence of self-employment.
i.e., exp[1.935/(2 × 0.107)].
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Burke, A., Fraser, S. Self-employment: the role of intellectual property right laws. Small Bus Econ 39, 819–833 (2012). https://doi.org/10.1007/s11187-011-9336-5
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DOI: https://doi.org/10.1007/s11187-011-9336-5