Patent law harmonization and international trade

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.