Co-evolution of IPR policy and technological learning in developing countries: a game-theoretic model
Ray, Amit Shovon
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Technological learning is a key determinant of economic growth. It has now been widely recognised in the literature that intellectual property rights (IPR) policy has very significant implications for technological learning and technological capability accumulation in developing countries (Lall 2001, IPR Commission 2002, Dutfield 2005). However, designing an appropriate IPR policy for driving the economy towards an optimum learning trajectory involves a complex public choice problem due to the trade-off between innovation and diffusion that it entails. Economists belonging to the neo-liberal tradition do not hesitate to endorse the importance of incentives to innovate and believes that a strong IPR regime that fosters such incentives for innovation (but restricts diffusion and learning through imitation and reverse engineering) would be the best policy option for a developing or emerging economy to embrace globalisation. Others, however, believe that developing countries are likely to lose out under strong IPR due to shrinking opportunities of imitative R&D and hence a weak IPR, facilitating diffusion and learning, could prove to be most important, for technological learning and catch-up (Helpman 1993, UNCTAD 1996, Lall 2001, Maskus 2000). While, the debate on optimum IPR policy continues, one is tempted to conclude that a weak IPR policy would perhaps be preferred over a stronger one in the initial stages of technological learning and economic development. But, once a country reaches technology maturity to achieve major breakthroughs, the benefits of protecting knowledge through strong IPR (incentive to innovate) might outweigh the benefits of diffusion. Hence, a strong IPR policy that encourages innovation may be necessary at a later stage after the country in question acquires innovative capability through learning. This essentially reflects that IPR policy can not remain static or invariant over time. It needs to be modified, fine-tuned and adjusted at various points in the technological learning trajectory of a nation, according to the nature and level of technological capability already acquired through this learning process. At the same time the nature and extent of technological learning will also definitely be shaped by the IPR policy adopted. In other words, technological learning and IPR policy have a strong mutual interface in the way they evolve. There is significant historical evidence of this phenomenon. Dutfield and Sutharsanan (2005), for instance, documents “numerous instances of how today’s developed countries often ensured they had weaker IP regimes than those of the technologically more advanced countries with which they were seeking to catch up”. Unfortunately, there is little theoretical analysis of this interface between IPR policy and technological learning. Our paper attempts to fill this gap in the economics literature. We seek to provide a theoretical understanding of the interface between technological learning and IPR policy, using tools of applied microeconomics. We develop a simple game theoretic model to explain the optimum IPR policy and the corresponding technological learning in a developing country. Our model identifies the nature and extent of domestic technological learning under different IPR regimes, both being endogenously determined. We begin with a brief overview of the concept of the evolution of technological capability of developing countries in section II. This is followed by a brief discussion of the institution of IPR and the related debates in section III. Section IV presents the model and the results. Section V interprets the co-evolutionary character of technological learning and IPR policy from our results and discusses the implications of TRIPS agreement for the process of TC acquisition in developing countries.