Patent rights, product market reforms, and innovation

In this paper, we provide empirical evidence to the effect that strong patent rights may complement competition-increasing product market reforms in fostering innovation. First, we find that the product market reform induced by the large-scale internal market reform of the European Union in 1992 enh...

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Bibliographic Details
Published in:Journal of economic growth (Boston, Mass.) Mass.), 2015-09, Vol.20 (3), p.223-262
Main Authors: Aghion, Philippe, Howitt, Peter, Prantl, Susanne
Format: Article
Language:English
Subjects:
Competition
Economic Growth
Economics
Economics and Finance
European Union
Growth models
Industry
Innovation
Innovations
Intellectual property
Intellectual property rights
International Economics
Macroeconomics/Monetary Economics//Financial Economics
Manufacturing
Market structure
Patent law
R&D
Reforms
Regulation
Research & development
Research & development expenditures
Studies
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Summary:In this paper, we provide empirical evidence to the effect that strong patent rights may complement competition-increasing product market reforms in fostering innovation. First, we find that the product market reform induced by the large-scale internal market reform of the European Union in 1992 enhanced, on average, innovative investments in manufacturing industries of countries with strong patent rights since the pre-sample period, but not so in industries of countries with weaker patent rights. Second, the positive response to the product market reform is more pronounced in industries where, in general, innovators tend to value patent protection higher than in other industries, except for the manufacture of electrical and optical equipment. The observed complementarity between competition and patent protection can be rationalized using a Schumpeterian growth model with step-by-step innovation. In such a model, better patent protection prolongs the period over which a firm that successfully escapes competition by innovating, actually enjoys higher monopoly rents from its technological upgrade.
ISSN:1381-4338
1573-7020
DOI:10.1007/s10887-015-9114-3