Intellectual property rights protection and unemployment in a North South model: A theoretical analysis

In this paper, we analyse a North South dynamic general equilibrium model of the international product cycle to study the effects of strengthening the Intellectual Property Rights (IPR) protection in the South on the rate of innovation in the North and on the level of unemployment in the South. Introducing efficiency wage hypothesis into the standard Grossman-Helpman [Grossman, G. and E. Helpman, 1991b. Endogenous product cycles. The Economic Journal, 101, 1214-1229.] product variety framework we explain unemployment equilibrium in the unskilled labour market in the South. We show that the strengthening of Intellectual Property Rights (IPR) protection has a negative effect on the steady state equilibrium rate of innovation. However, its effect on the level of unemployment in the South depends on the relative wage gap between these two regions. In the wide gap equilibrium case, stronger IPR protection lowers the level of unemployment. However, in the narrow gap case, this raises the level of unemployment. We also analyse the effects of changes in labour endowments in both the countries.