Hostname: page-component-586b7cd67f-dlnhk Total loading time: 0 Render date: 2024-11-23T03:45:56.288Z Has data issue: false hasContentIssue false
  • English
  • Français

PATENTS AND GROWTH IN OLG ECONOMY WITH PHYSICAL CAPITAL

Published online by Cambridge University Press:  24 July 2019

Bharat Diwakar ,
Gilad Sorek  and
Michael Stern
Bharat Diwakar
Affiliation:
The Indian Institution of Technology
Gilad Sorek*
Affiliation:
Auburn University
Michael Stern
Affiliation:
Auburn University
*
Address correspondence to: Gilad Sorek, 106A Miller Hall, Department of Economics, Auburn University, Auburn, Alabama, 36849, USA. email: [email protected]. Phone: 716-867-9497.
Get access Rights & Permissions [Opens in a new window]

Abstract

We study the implications of patents in an overlapping generations model with horizontal innovation of differentiated physical capital. We show that within this demographic structure of finitely lived agents, weakening patent protection generates two contradicting effects on innovation and growth. Weakening patent protection lowers the (average) price of patented machines, thereby increasing machine utilization, output, aggregate saving, and investment. However, a higher demand for machines shifts investment away from the R&D activity aimed at inventing new machine varieties toward the formation of physical capital. The growth-maximizing level of patent protection is incomplete. Shortening patent length is more effective than loosening patent breadth in spurring growth, due to an additional positive effect on growth, that is decreasing investment in old patents. Welfare can be improved by weakening patent protection beyond the growth-maximizing level.

Keywords

PatentsPhysical CapitalGrowthOLG
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 2 , March 2021 , pp. 489 - 508
Copyright
© Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

This work integrates, corrects, and extends the analyses presented by Diwakar and Sorek in earlier working papers titled “Finite Lifetimes, Patents’ Length and Breadth, and Growth” and “Dynamics of Human Capital Accumulation, IPR Policy, and Growth” (circulated as Auburn University Department of Economics Working Papers: AU-WP #2016-11 and #2016-7, respectively). We are grateful to a referee of this Journal for various helpful comment and suggestions. We have also benefitted from comments by seminar participant at Auburn University, the 2016 and 2017 Southern Economic Association conferences in Washington DC and Tampa FL, and the 2017 North American Econometric Society Summer Meeting in St. Louis MO

References

REFERENCES

Aghion, P. and Howitt, P (1992) A model of growth through creative destruction. Econometrica 60, 323–351CrossRefGoogle Scholar
Aghion, P. and Howitt, P (2008) The Economics of Growth Cambridge, MA: MIT Press.Google Scholar
Barro, R. J. and Sala-i-Martin, X (2004) Economic Growth, 2nd ed. Cambridge, MA: MIT Press.Google Scholar
Blanchard, O. J. (1985) Debt, deficits, and infinite horizons. Journal of Political Economy 93, 223–247.CrossRefGoogle Scholar
Chu, A. C., Cozzi, G and Galli, S (2014) Stage-dependent intellectual property rights. Journal of Development Economics 106, 239–249.CrossRefGoogle Scholar
Chu, A. C., Furukawa, Y and Ji, L (2016) Patents, R&D subsidies, and endogenous market structure in a Schumpeterian economy. Southern Economic Journal 82, 809–825.CrossRefGoogle Scholar
Chou, C.-f. and Shy, O (1993) The crowding-out effects of long duration of patents. RAND Journal of Economics 24, 304–312.CrossRefGoogle Scholar
Cysne, R. P. and Turchick, D (2012) Intellectual property rights protection and endogenous economic growth revisited. Journal of Economic Dynamics & Control 36, 851–861.CrossRefGoogle Scholar
Diwakar, B. and Sorek, G (2016) Dynamics of Human Capital Accumulation, IPR Policy, and Growth. Auburn University Economics Working Papers Series.Google Scholar
Diamond, P. A. (1965) National debt in a neoclassical growth model. American Economic Review 55, 1126–1150.Google Scholar
Grossman, G. M. and Helpman, E (1991) Quality ladders in the theory of growth. Review of Economic Studies 58, 43–61CrossRefGoogle Scholar
Hall, R. E. (1988) Intertemporal substitution in consumption. Journal of Political Economy 96, 339–357.CrossRefGoogle Scholar
Helpman, E. (1993) Innovation, imitation, and intellectual property rights. Econometrica 61, 1247–1280.CrossRefGoogle Scholar
Eicher, T. S. and Newiak, M (2013) Intellectual property rights as development determinants. Canadian Journal of Economics 46, 4–22.CrossRefGoogle Scholar
Engelhardt, G. V. and Kumar, A (2009) The elasticity of inter temporal substitution: new evidence from 401(k) participation. Economics Letters 103, 15–17.CrossRefGoogle Scholar
Goh, A.-T. and Olivier, J (2002) Optimal patent protection in a two-sector economy. International Economic Review 43, 1191–1214.CrossRefGoogle Scholar
Iwaisako, T. (forthcoming) Welfare effects of patent protection in a semi-endogenous growth model. Macroeconomic Dynamics, 1–21.Google Scholar
Iwaisako, T. and Futagami, K (2003) Patent policy in an endogenous growth model. Journal of Economics 78, 239–258.CrossRefGoogle Scholar
Iwaisako, T. and Futagami, K (2013) Patent protection, capital accumulation, and economic growth. Economic Theory 52, 631–668.CrossRefGoogle Scholar
Jones, L. E. and Manuelli, R. E. (1992) Finite lifetimes and growth. Journal of Economic Theory 58, 171–197.CrossRefGoogle Scholar
Kwan, Y. K. and Lai, E. L.-C. (2003) Intellectual property rights protection and endogenous economic growth. Journal of Economic Dynamics and Control 27, 853–873.CrossRefGoogle Scholar
Marchese, C., Marsiglio, S, and Privileggi, F (2019) Endogenous recombinant, growth and intellectual property rights. Macroeconomic Dynamics, 23, 2035–2067.CrossRefGoogle Scholar
Ogaki, M. and Reinhart, C. M. (1998) Measuring intertemporal substitution: the role of durable goods. Journal of Political Economy 106, 1078–1098.CrossRefGoogle Scholar
Pan, S., Zhang, M, and Zou, H.-F. (2018) Status preference and the effects of patent protection: theory and evidence. Macroeconomic Dynamics 22, 837–863.CrossRefGoogle Scholar
Ribeiro, R and Turchick, D (2014) Optimal patent breadth in a horizontal innovation growth model. Unpublished working paper, FEA/USP working paper series # 2014–15Google Scholar
Rivera-Batiz, L. A. and Romer, P. M. (1991) Economic integration and endogenous growth. Quarterly Journal of Economics 106, 531–556.CrossRefGoogle Scholar
Romer, P. M. (1990) Endogenous technological progress. Journal of Political Economy 98, 71–102.CrossRefGoogle Scholar
Samuelson, P. A. (1958) An exact consumption-loan model of interest with or without the social contrivance of money. Journal of Political Economy 66, 467–482.CrossRefGoogle Scholar
Sorek, G. (2011) Patents and quality growth in OLG economy. Journal of Macroeconomics 33, 690–699.CrossRefGoogle Scholar
Uhlig, H. and Yanagawa, N (1996) Increasing the capital income tax may lead to faster growth. European Economic Review 40, 1521–1540.CrossRefGoogle Scholar
Zeng, J., Zhang, J, and Fung, M. K.-Y. (2014) Patent length and price regulation in an R&D growth model with monopolistic competition. Macroeconomic Dynamics 18, 1–22.CrossRefGoogle Scholar