R&D subsidy, intellectual property rights protection, and North-South trade: How good is the TRIPS agreement?

This paper investigates the competition in technology and production between a firm in the North (developed country) and a firm in the South (developing country), and how such competition may be affected by the North's subsidy on technology improvement and the South's intellectual property rights (IPR) protection level. It is argued that allowing the North to choose the policy first could bring Pareto improvement. This paper also shows that requiring only the South to tighten its IPR protection (as required by the TRIPS agreement) without putting similar pressure on the North to provide more R&D hurts the South. A more rewarding outcome exists if both the IPR protection level and the technology subsidy rate are chosen optimally. We point out that maximizing world welfare does not consequently hurt the South, or require a tightening of IPR protection in the South.