# Summary

This brief review of the literature highlights the importance of technology for economic growth. IPRs appear to play a role in enhancing the incentives for new innovation and diffusion of existing innovation. In turn, the accumulation of technology in the economy that results from this process may influence productivity. From the evidence presented above, it appears that this process may operate in a broad range of developed and developing countries, with implications for growth and comparative advantage.

In this context, it is notable that the levels and evolution in protection for IPRs around the world since 1990 have not been uniform. The next section will consider the variation in IPR protection across countries and the association of change in IPR protection with changes in technological achievement and productivity.

# Analytical approach and data

The analytical approach employed is empirical, based on a two equation system implemented using a two step approach. The objective is to examine the relationship of change in IPR protection to change in technological achievement and the relationship of technological achievement to change in labour productivity.

The relationship of IPR protection to technological achievement is estimated in equation (1). The equation was estimated three times, drawing in turn on each of three indices of IPR protection, concerning respectively patent rights, copyrights and trademark rights. Control variables included GDP per capita and FDI inflows, with country fixed effects. All variables were introduced as natural logarithms. The equation considers the relationship using national-level (aggregate) balanced panel data for the years 1990 and 2000. The hypothesis underlying this part of the analysis is that in view of initial weaknesses in IPR protection (relative to current standards) for the countries concerned as of 1990, the strengthening of IPR protection during the subsequent decade would be associated with stronger incentives to innovate and diffuse innovation, and consequently stronger technological achievement.

Equation (2) considered the relationship of technological achievement to labour productivity using balanced panel data for the years 1990 and 2000, controlling for GDP per capita, with country fixed effects. Here as well all variables were introduced as natural logarithms. In order to control for endogeneity of technological achievement, the variable is instrumented using the exogenous variables in the system; for each country three estimates of ^{A}T were developed using equation (1) results for patent rights, copyright and trademark rights. The hypothesis underlying this part of the analysis is that on average relatively higher levels of technological achievement during the period will be associated with relatively greater productivity; this is because greater technological achievement (as measured by the TAI) implies greater capacity to accumulate and diffuse technology across the economy, which can result in greater output per hour worked.

Equations (1) and (2) constitute the core analysis for this chapter. Equation (3) was included as a secondary means of confirming the results of the analysis using equation (2). It is structured in a manner somewhat similar to equation (2), but considers the change in labour productivity over the period as the dependent variable. It employs sector-level data, by country, for the value added per hour and gross output per hour series. The independent variables refer to the initial period. Sector fixed effects are employed. Data limitations required use of a restricted sample for the implementation of equation (3); it could not be estimated using predicted values for technology achievement (see below) based on trademark rights data, and one country dropped out of the sample.

The model as estimated is presented below:

Where

T = *Technology Achievement Index* (NB, this variable would be endogenous in equation (2); to circumvent this situation, we instrument for it using the exogenous variables in equation 1 to obtain predicted values. The predicted values are indicated by the following notation: ^{A}T. Separate estimates of ^{A}T were calculated for patent rights, copyright and trademark rights. In equation (3), the predicted values refer to 1990.)

Y = level of value added per hour or gross output per hour worked, national level data, for the periods 1990 and 2000.

AZ= change in the value added per hour or gross output per hour worked, sector-level data, by country, for the period from 1990 to 2000.

i = country

s = sector

t = * year* (1990 or 2000) a

_{1}, a

_{2}and a

_{3}are

**constants**p_{1}, p_{2} and p_{3} are coefficients for the independent variables of prime interest in the present analysis, namely those concerning protection of intellectual property rights (equation 1) and technological achievement (equations 2 and 3), respectively.

X = a measure of the strength of * intellectual property rights* (Park

*indices for patent, copyright and trademark protection, each included in separate iterations of the model),*

**et al**V = a * control variable,* namely GDP per capita (in equation 3, this refers to 1990 only)

W = a * control variable,* namely inward FDI 0 = country fixed effects p = country fixed effects m = sector fixed effects s and

*= the*

**e***ln denotes the natural logarithm.*

**error terms**The data for the analysis were drawn from several sources:

- • The
(TAI) was presented in the World Bank’s**Technology Achievement Index**(WB, 2008). It is based on a broad range of indicators concerning innovation, technological adaptive capacity, channels of technology diffusion, diffusion of recent technologies and penetration of old technologies.**Global Economic Prospects, 2008**^{9}All together, there are 34 separate variables underlying the TAI. Aggregation is accomplished using weights calculated by principle components analysis. - • The series on output and productivity were
from the EU-KLEMS data set, November 2009 release.**drawn**^{10 [1]}

- • Control variables for equation 1 were drawn from the dataset underlying Park and Lippoldt (2008).
- • The combined dataset from these
covered 14 OECD countries: Australia, Austria, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Portugal, Sweden, the United Kingdom and the United States. Data by sector were not available for the United States due to different sector classification within the KLEMS dataset; hence, it was dropped from the sample in the implementation of equation (3).**sources**

Descriptive statistics for the key variables are presented in Annex Table 9.A1, by year and pooled across time periods. Panel A highlights the complete sample, with all countries covered. In reference to the implementation of equation (3), Panel B highlights these statistics for the sample excluding the United States. As presented in the table, one notable feature of the data concerns the decline in the dispersion of the three IPR indicators between 1990 and 2000. In part, this may be attributed to greater international co-ordination in setting of minimum standards of protection for IPRs, including via the TRIPS Agreement that came into effect in 1995. In comparison to developing countries, the advanced economies in the present sample were extended less flexibility under the TRIPS Agreement and hence one might expect relatively smaller variation in the present sample than one would find globally.

Figure 9.A2 presents histograms showing the distribution of scores across the sample for 1990 and 2000, for each of the IPR indices and for the Technology Achievement Index. The scores are displayed in natural logarithms. The figure highlights graphically the increased convergence in the situation of these advanced economies with respect to the subjects covered by these indices.

- [1] The protection of IPRs is represented by three indices developed by Walter G. Park,American University, and colleagues. The indices measure the strength of IPRsbased on laws on the books assessed using objective criteria concerning suchdimensions as membership in relevant international treaties, statutory laws andlegislation, and case law (for details see Park and Lippoldt, 2008). The presentanalysis employs the Patent Rights Index, Copyright Index and Trademark RightsIndex.