Innovation, standardization, and imitation in the product cycle model

Abstract

We develop a product cycle that is much more akin to Vernon's original vision of the product cycle, in which standardization of production techniques is required for the international transfer of technology to the developing South. We show that, since stronger intellectual property rights (IPR) encourages standardization and thus technology transfer, it can enhance the long-run innovation rate in the developed North. This is because less production remains in the North, which leaves more resources in the North for R&D activity. Specifically, we show the possibility of an inverted-U relationship between IPR and innovation (and resulting economic growth). Our result suggests that a balanced approach (not too strong and not too weak) is required to enhance economic growth in the world economy.