Knowledge spillovers and intellectual property rights

Knowledge spillovers are widely thought to be important for innovative activity, yet theory is ambiguous about the sign of the relationship. Assuming that knowledge spillovers are more easily exploited where intellectual property rights are weakly enforced, this paper uses country-industry data to uncover the link between knowledge spillovers and innovative activity, as well as the birth and death of enterprises. IPR enforcement disproportionately increases innovation spending in R&D intensive industries, as well as both rates of entry and exit. The results are robust to accounting for financial development, labor market ridigities and a number of other institutional factors.

► Knowledge spillovers are identified using intellectual property rights. ► IPRs enhance innovation in industries that tend to be R&D intensive. ► IPRs enhance entry and exit in industries that tend to be R&D intensive. ► The results are robust to including a wide variety of other institutional factors.