International intellectual property rights protection and the rate of product innovation

Using a dynamic general equilibrium model of the international product cycle we found that the effects of strengthening intellectual property rights protection (IPP) in South depend cricially on the channel of production transfer from North to South. Stronger IPP in South increases the rate of product innovation, production transfer and Southern relative wage if foreign direct investment is the channel of production transfer, but has opposite effects if production is transferred through imitation. Stronger IPP can be more broadly interpreted as any incentive given by South to encourage Northern FDI.