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Patent law harmonization and international trade

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Abstract

Global harmonization of intellectual property rights (IPR) system is one of the major challenges in multilateral or regional trade negotiations. It remains even unclear as to whether the harmonization of the IPR system spurs international trade. The present study argues that institutional harmonization in terms of knowledge production plays an important role in trade of patent-sensitive goods, considering the fact that trade in patent-sensitive goods is heavily concentrated in trade between developed countries. This study empirically examines the relationship between harmonization of patent rights systems and international trade flow based on world bilateral trade data during 1995–2010. Differently to methods of previous studies on this topic, this study uses a structural gravity model based on a translog demand system that is more flexible than constant elasticity of substitution type preferences. The results reveal that institutional distance in terms of patent law has an inverted U-shaped relationship with bilateral trade share in patent-sensitive industries, suggesting similarity in patent systems of exporters and importers raises bilateral trade. This result is robust to the model with additional variables that affect trade costs.

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Data availability

The data that support the findings of this study are available from BACI by CEPII but restrictions apply to the availability of these data, which were used under license for the current study, and so are not publicly available. Data are, however, available from the authors upon reasonable request and with permission of BACI by CEPII.

Notes

  1. The definition of patent sensitivity is based on the cross-industry survey by Cohen et al. [6]. Details are explained in “Data”.

  2. In addition, Novy [17] assumed symmetry across goods from the same origin country in terms of price and trade costs, that is, \({p}_{m}={p}_{i}\) and \({t}_{mj}={t}_{ij}\), respectively.

  3. Specifically, patent-sensitive industries are the following six industries in which the patent effectiveness score is highest, in descending order (ISIC codes, Rev.3 are in parentheses): medical equipment (3311), drugs (2423), special purpose machinery (2920), autoparts (3430), computers (3010), and miscellaneous chemicals (2429).

  4. Mineral products, metal n.e.c, and electronic components are defined as patent-insensitive industries, based on the survey result of effectiveness of appropriability mechanisms by Cohen et al. [6].

  5. For example, Hummels and Klenow [12] reported that the extensive margin index in 1995 is 0.912 for the US, 0.725 for Japan, and 0.786 for Germany while it is 0.232 for New Zealand, 0.163 for Chile, and 0.054 for Iceland.

  6. To take into account possible price effects for a country in a specific year, this study also estimates the equation in which dummy variables for exporter and year are introduced. The main results are not changed.

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Funding

The authors are grateful to seminar participants at Aoyama Gakuin University, GRIPS, RIETI, and participants at the European Trade Study Group 2016 annual conference for helpful comments on the earlier version of this paper. This work was supported by JSPS KAKENHI Grant Number 26380315 and 20K01684.

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Authors and Affiliations

  1. College of Economics, Aoyama Gakuin University, 4-4-25 Shibuya, Shibuya-Ku, Tokyo, 150-8366, Japan

    Banri Ito

  2. Research Institute of Economy, Trade and Industry (RIETI), 1-3-1, Kasumigaseki, Chiyoda-Ku, Tokyo, 100-8901, Japan

    Banri Ito

  3. Faculty of Economics, Osaka Gakuin University, 2-36-1 Kishibe-Minami, Suita-Shi, Osaka, 564-8511, Japan

    Katsunori Shirai

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  1. Banri Ito
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Correspondence to Banri Ito.

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Appendix

Appendix

See Table 6.

Table 6 Extensive margin index by Hummels and Klenow
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Ito, B., Shirai, K. Patent law harmonization and international trade. IJEPS 17, 289–306 (2023). https://doi.org/10.1007/s42495-022-00103-7

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