How Stronger Protection of Intellectual Property Rights Affects International Trade Flows

Considerations of political economy favor higher standards of protection for intellectual property rights. But does stronger protection of intellectual property rights have a positive impact on international trade flows? Yes in the case of nonfuel trade in general, but no evidence is found for trade in high-technology goods.Intellectual property rights affect international trade flows when protected goods move across national boundaries. And intellectual property rights have grown in importance as the share of knowledge-intensive or high-technology products in international trade has doubled (from 12 percent in 1980 to 24 percent in 1994).Fink and Braga report new evidence about how protecting intellectual property rights affects international trade flows of nonfuel trade products. Employing a gravity model of bilateral trade, they estimate the effects of increased protection on a cross-section of 89 x 88 countries. To address estimation problems associated with zero trade flows between countries, they adopt a bivariate distributed probit regression model.Their results confirm previous findings: Stronger protection of intellectual property rights increases bilateral trade flows of manufactured nonfuel imports.But the results do not hold for trade flows in high technology, where the effect of protecting intellectual property rights was found to be insignificant.This paper - a joint product of the Science and Technology Thematic Group and the Energy, Mining, and Telecommunications Department - is part of a larger effort in the Bank to assess the impact of intellectual property rights on economic development