How Stronger Protection of Intellectual Property Rights Affects International Trade Flows

Intellectual property rights affect international trade flows when protected goods move across national boundaries. And intellectual property rights have grown in importance as the share of knowledge-intensive or high-technology products in international trade has doubled (from 12 percent in 1980 to 24 percent in 1994). The authors report new evidence about how protecting intellectual property rights affects international trade flows of nonfuel trade products. Employing a gravity model of bilateral trade, they estimate the effects of increased protection on a cross-section of 89 x 88 countries. To address estimation problems associated with zero trade flows between countries, they adopt a bivariate distributed probit regression mode. Their results confirm previous findings: stronger protection of intellectual property rights increase bilateral trade flows of manufactured nonfuel imports. But the results do not hold for trade flows in high technology, where the effect of protection intellectual property rights was found to be insignificant.