The TRIPS Agreement and Industrial Development

The Trade Related Aspects of Intellectual Property (TRIPS) agreement is an undertaking by members of the World Trade Organisation (WTO) to respect each others’ property rights.  At its inception, its main purpose was to protect the intellectual property rights (IPRs) of Northern firms, who have historically tended to be the main innovators, in Southern markets where imitation was prevalent.  In the Uruguay Round where the WTO was formed, the terms of TRIPS were agreed to as a quid pro quo for easier entry of Southern products into Northern markets.  One of the main concerns that has arisen as a result of TRIPS is the effect on Southern industrial development of tighter intellectual property protection, since imitation by firms in the South that is widely seen as a precursor to innovation has been curtailed by TRIPS. On the other hand, TRIPS proponents argue that stronger IPRs world-wide will not only increase incentives for innovation but also foster industrial development in developing countries by encouraging multinationals to move production there. A key point established in this literature is that the effects of increased IPR protection in the South on the Northern rate of innovation depend critically on whether production shifts to the South via imitation of Northern firms or via North–South FDI. Recent research has produced a unified framework in which Northern innovation, Southern imitation and the North–South flow of FDI respond endogenously to changes in the degree of Southern IPR protection available to Northern firms, wherein the South’s share of the global basket of goods can actually increase with a strengthening of Southern IPR protection. Econometric testing finds some supportive evidence in the data.
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