Journal of Economic Growth

, Volume 20, Issue 3, pp 223–262 | Cite as

Patent rights, product market reforms, and innovation

Article

Abstract

In this paper, we provide empirical evidence to the effect that strong patent rights may complement competition-increasing product market reforms in fostering innovation. First, we find that the product market reform induced by the large-scale internal market reform of the European Union in 1992 enhanced, on average, innovative investments in manufacturing industries of countries with strong patent rights since the pre-sample period, but not so in industries of countries with weaker patent rights. Second, the positive response to the product market reform is more pronounced in industries where, in general, innovators tend to value patent protection higher than in other industries, except for the manufacture of electrical and optical equipment. The observed complementarity between competition and patent protection can be rationalized using a Schumpeterian growth model with step-by-step innovation. In such a model, better patent protection prolongs the period over which a firm that successfully escapes competition by innovating, actually enjoys higher monopoly rents from its technological upgrade.

Keywords

Intellectual property rights Competition Innovation 

JEL Classification

O3 L1 O4 L5 

Supplementary material

10887_2015_9114_MOESM1_ESM.zip (348 kb)
Supplementary material 1 (zip 348 KB)

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Harvard UniversityCambridgeUSA
  2. 2.Brown UniversityProvidenceUSA
  3. 3.University of CologneCologneGermany

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