The protection of intellectual property rights and endogenous growth: Is stronger always better?

This paper uses a variety expansion model of endogenous growth to examine the effect of intellectual property rights (IPR) protection on economic growth in a closed economy. Most of the studies in the literature show that, in closed economies, enhancing the protection of IPR increases the expected duration of monopoly and the associated incentive to innovate. A large incentive to innovate enhances the growth rate. However, allowing for technological sophistication that is driven by the cumulative experience in producing a final good, enhanced protection can have a negative effect on growth by increasing the share of monopolized sectors. Because the scale of production falls as a result of monopoly pricing, the experience accumulation declines with stronger protection of IPR. As a result, stronger IPR decreases the productivity of the final sector, the associated demand for innovation, and economic growth. This paper shows that, if the latter dominates the former, IPR protection is not growth enhancing. (c) 2007 Elsevier B.V. All rights reserved.