Innovation and Intellectual Property Rights in a Product‐Cycle Model of Skills Accumulation

Abstract

This paper examines the effects of stronger intellectual property rights protection in the South based on a North–South general-equilibrium model with foreign direct investment (FDI). Two types of innovation are considered – innovation targeting all products and innovation targeting only imitated products. We show that for both types of innovation, there will be increases in the innovation rate and Northern wage inequality and a decrease in the proportion of Northern unskilled labor if imitation intensity is sufficiently low. As regards the pattern of production, the extent of FDI will increase while the extent of Northern production and Southern production will decrease.