Patent Protection, Innovation Rate and Welfare

Abstract

In the context of international technology transfer from the developed North to the developing South, this paper analyses the impact of the Southern patent protection on the innovation rate in the North and the welfare effect in the South. In a two-period model, we show how the different modes of technology transfers (licensing or subsidiary) affect the R&D incentive and thereby the rate of innovation in the North. It is shown that under the licensing contract, no patent protection in the South is best for the South as it increases the innovation rate in the North, thereby leading to greater welfare in the South. We also argue for certain degree of patent protection in the South for maximization of its welfare under some parameter configurations.Technology transfer; Patent protection; Innovation; Welfare