Innovation, imitation and multinationalisation in a North-South model: a theoretical note

We consider a dynamic general equilibrium product variety model of international product cycle with endogenous rate of imitation in the South; and find that a policy of strengthening intellectual property rights (IPR) protection in the South lowers the rate of product innovation, rate of multinationalisation and South-North relative wage if multinationalisation [or, foreign direct investment (FDI)] is the channel of production transfer. These results are significantly different from those obtained in the exogenous imitation model of Lai (J Dev Econ 55(1): 133-153, 1998). So a stronger IPR protection policy adopted by the South may not be interpreted as an incentive to encourage Northern FDI in the South and to raise the rate of innovation in the North.