Innovation, Imitation, and Intellectual Property Rights

The debate between the North and the South about the enforcement of intellectual property rights in the South is examined within a dynamic general equilibrium framework in which the North innovates new products and the South imitates them. A welfare evaluation of a policy of tighter intellectual property rights is provided by decomposing a region's welfare change into four components: terms of trade, production composition, available product choice and intertemporal allocation of consumption spending. The paper provides a theoretical evaluation of each one of these components and their relative size. The analysis proceeds in stages. It begins with an exogenous rate of innovation in order to focus on the first two components. The last two components are added by endogenizing the rate of innovation. Finally, the paper considers the role of foreign direct investment.