TRIPs, trade and growth: When comparative advantages break down

In this paper we combine a model of Ricardian comparative advantages as in Dornbusch et al. (1977) with Grossman and Helpman's (1991) quality ladder model and derive the consequences of asymmetric IPRs protection for the pattern of trade and the world rate of growth through innovation. Our analysis differs from that already made by Taylor (1994) in that final goods and research technologies do not go exactly along together, so the impossibility of doing licensing under asymmetric protection will here bring forth an infringement of comparative advantages which we call “the invasion effect”.

► In this paper we combine a model of Ricardian comparative advantages as in Dornbusch et al. (1977) with Grossman and Helpman's (1991) quality ladder model. ► We derive the consequences of asymmetric IPRs protection for the pattern of trade and the world rate of growth through innovation. ► The main difference with respect to Taylor (1994) is that in our setup final goods and research technologies do not go exactly along together. ► Under our assumptions asymmetric IPRs protection will bring forth a true infringement of specialization according to comparative advantages, which we call “the invasion effect”. ► This will cause a reduction in the global quantity of innovation through a mechanism that is different from Taylor's (1994).