Effects of patent protection on economic growth and welfare in a two-R&D-sector economy

This paper examines the effects of patent protection in a growth model, where final goods firms and intermediate goods firms engage in R&D. The results show that: (i) strengthening patent protection is likely to increase the technology level of the final goods sector relative to the intermediate goods sector in most cases; (ii) if R&D productivity in the final goods sector is lower than that in the intermediate goods sector, the relationship between patent protection and economic growth is an inverted-U shape; and (iii) an increase in R&D productivity in the intermediate goods sector can reduce the welfare-maximizing level of patent protection.