Northern and Southern Patent Novelty Requirement Harmonization, Growth and Trade

We study the incentive that governments have to protect IPR in a trading world economy, focusing on the patent novelty requirement and its effect on growth and trade. We consider a world economy with ongoing innovation in two regions. The North is assumed to have a higher wage than the South and a greater capacity for innovation, the South is assumed to have a larger population than the North. We introduce heterogeneity in innovation size together with the obligation, imposed by Patent Office inside each region, that innovation size must be higher than the patent novelty requirement. This patent characteristic stands to be a useable instrument to promote innovation and growth, and also a strategic trade policy instrument. We numerically determine the Nash equilibrium of the strategic game that results of the patent novelty requirement setting by each regional authority. We then compare, in terms of welfare, the non-cooperative equilibrium with the equilibrium that results from the patent novelty requirement harmonization, when the level of this common patent novelty requirement is set by a supra-regional organization.