International Intellectual Property Rights: Effects on Growth, Welfare and Income Inequality

What are the effects of strengthening developing countries’ protection for intellectual property rights on economic growth, social welfare and income inequality in the global economy? To analyze this question, we develop a two-country R&D-based growth model with wealth heterogeneity. We find that the North experiences higher growth and welfare at the expense of higher income inequality while the South experiences higher growth at the expense of lower welfare and higher income inequality. As for global welfare, there exists a critical degree of cross-country spillovers below (above) which global welfare decreases (increases). In light of these findings, we discuss policy implications on China’s accession to the World Trade Organization in 2001.