Impact Of Trips On Developing Countres Economic Development Economics Essay

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TRIPs impact is a relatively new research field, and it is sure that the performance of TRIPs will exert deep influence on developing-country's economic development. Through the analysis of different viewpoints about TRIPs' influence on Foreign direct investment, international trade, technological innovation and economic welfare, some common points are summarized as follows: intensive IPP will bring about more positive effect on FDI if the country comprises large scale market and stable political status, high-standard TRIPs will promote the development of international trade and bring about market expansion, moderate protection on technologically creative fruit is necessary and can hasten the countries' long-term growth, dynamic efficiency and dynamic welfare is better than static welfare and efficiency expense. However, though there are some ology questions to resolve, such as connection mechnisms between IPP and FDI, etc, some apocalypse can be acquired from the above-mentioned views which will play important directive functions for developing countries, these are: the transition of IPP from weakness to high intensity is an inevitable trend, developing countries should comprehensively measure the succedent IPP impact in order to put up necessary policy innovation to safeguard the lowest cost and the most bebefication, developing countries should make TRIPS an effective implement in promoting domestic knowledge accumulation and economic growth.

Recent years, the main form and the competitive methods of world trade, have been upgraded from trade in goods, trade in service to Trade-related Aspects of Intellectual Property Rights (TRIPs) progressively. Intellectual property rights have become an international issue which cannot be avoided.

TRIPs agreement is the most influential international agreement which is a link between intellectual property rights and international trade. This article will analyze the impacts of TRIPs agreement on the prospective of developing countries, and also gives some recommendations.

TRIPs agreement is also a contentious agreement which is administered by World Trade Organization. It is no doubt that the most controversial with the impact is its development. This agreement asks all the member states of World Trade Organization have to establish a minimum standard of a number of different forms of legal protection and enforcement of intellectual property rights.

Many developing countries believe that, the agreement of intellectual property rights which related trade was becoming effective at the middle of 90s'. It is in favor of developed countries and transactional companies, but at the same time it will be harmful to their interests. Additionally, developed countries accept higher standard than the World Trade Organization required before they are in support of the development of economic and reduction of poverty.



1.1 Definition of TRIPs

TRIPs agreement is short for Trade-related Aspects of Intellectual Property Rights. This agreement will become an international standard of the protection of intellectual property rights.

1.1.1 Definition of Intellectual Property Rights

Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.

1.1.2 Propose of TRIPs

Expected to reduce the distortions and barriers, promote the full and effective protection to the intellectual property rights, at the same time, ensure that the law enforcement measure and procedure of intellectual property rights from becoming an legitimate obstacle.

1.1.3 Contents of TRIPs

TRIPs agreement covers a total of the following eight aspects of intellectual property rights, which are: copyright and related rights, trademarks, geographical indications, industrial designs, patents, integrated circuit design, the undisclosed information, protection of the right and the licensing contract restrictions on competitive behavior control.

Meanwhile, the availability of these intellectual property rights, scope and exercise of the standards, implementation, access and maintenance procedures, dispute prevention and settlement and so on, detailed provisions in both agreements, intellectual property rights gone beyond any existing international conventions, will link together with intellectual property issues and trade.


Chapter 3

The impact of TRIPs on international trade

In the current WTO framework, the trend of trade liberalization is strengthen step by step, while the power of pushing the intellectual property rights protection goes stronger and stronger. Many developing countries are being shifted from trade protection to trade liberalization. Some of these countries, while liberalization goes quickly, its protection of intellectual property also strengthen. With regard to intellectual property protection on international trade implications, Economists also carried out some research. One, R. Stern believes that the lack of coordination between countries of intellectual property protection is like the effect of non-tariff barriers, as the developed countries export goods to developing countries, they need to take extra measures to prevent local imitation and face greater cost, therefore, to strengthen international coordination of intellectual property protection will much lower the transaction costs. MJFerrantino analyzed the data of normal trade, intra-firm trade and local trade in the early 80's , 20th century of United States and found that the of intellectual property rights only has a weak correlation with normal trade in United States and has no effect on the local trade, but has a great impact on the intra-firm trade. Maskus & Puttitanun evaluates the effect that the protection of intellectual property rights brings to the international trade flows by using the modified Helpman-Krugman model of monopolistic competition, and found that the high-intensity intellectual property rights protection implemented by the developing countries has a positive effect on imports of intermediate goods. The joint effect of "market competitive effect", " market expansion effect "and " cost reduction effect" promotes the exports of intermediate goods from developed countries to developing countries and regions. Maskus's findings is that the imports will be greatly improved when the developing countries strengthen the intellectual property protection. Especially when the country is a big developing country, the import volume of products in equipment, machinery and food industry will rise. There is also evidence to show that the improve of patent protection in foreign markets has the market expansion effect to the companies in OECD countries, and lead them to increase the export to the countries which have promoted their protection level.

Based on the above analysis we can see that TRIPs can really drive development of international trade, and also can bring the market expansion effects to the developing countries. From a theoretical point of view, the strengthening of intellectual property protection will bring two opposite effects to international trade. On the one hand, the elasticity of demand of protected products will decrease because of the strengthening of protection, on the other hand the demand of protected products will increase because of the restriction of imitation. Which effect is lighter and which is heavier, it's still needed further study. But one thing is undeniable, that is, the developed countries constantly promote the reform of national intellectual property system by the TRIPs, and it is the driving force due to the pursuit of trade expansion. However, it is noteworthy that, TRIPs agreement hasn't met the requirements of the developed countries, and it will continue to take tough measures in practice. While the developing countries is improving the efficiency of the implementation of the TRIPs agreement, how to control the unilateral power of developed countries behavior properly, is still the crux of the problem.

Chapter 4

The impact of TRIPs on the Foreign Direct Investment

The flow of Foreign Direct Investment influences by many factors, such as market conditions, economic growth situation, resource endowment, and political prospects, intellectual property is one of the factors which influence. On the different level of protection of intellectual property rights on the impact of FDI, economist carried out a trial research. Through investigation to 100 major enterprises in 6 manufacturing sector of the United States in 1990-1992, they found that, if one country has a weak protection to its intellectual property, which would be hinder the investment from United States. On the contrast, a country which owns a strong protection on its intellectual property, the FDI flow would be attracted more and more, especially in the chemical industry and pharmaceutical industries.( ) In different industries, the effect of intellectual property protection is also different, while the influence of foreign direct investment decisions is differently. Textile and garment industry, the simple processing, catering and other low-tech goods and services, these kinds of investments less depends on the strength of intellectual property protection. In contrast, pharmaceutical, chemical, software and other high knowledge content industries, its products and technologies more likely to be imitated and copied, investors will pay more attention to the countries which be more concerned about the strength of intellectual property protection and enforcement capacity. Developing countries strengthen intellectual property rights can be seen as a market signal; they would like to encourage cross-border direct investment from the foreign countries. An OECD report pointed out that: Foreign companies are always avoiding investing in countries with weak intellectual property protection.( )

As can be seen, these researches have focused primarily on the impact of strong protection of intellectual property right to FDI flows, as weak intellectual property protection on the impact of FDI has not yet sufficient analysis. In essence, varying degrees of intellectual property protection, FDI flows will bring the same direction, the impact on the one hand, if the host country's level of intellectual property protection is weak, will increase the possibility of imitation, making the host country less attractive for FDI, and the other On the one hand, if the host country to take a strong intellectual property protection measures, they may turn to transnational corporations by means of technical trade, FDI to serve foreign markets, but also to some extent reduce the inflow of FDI. Therefore, developing countries, changes in the intellectual property system the possible impact of investment flows should be based on concrete analysis of specific cases, in the market, political and economic conditions and other factors do not have the conditions, the use of a higher intellectual property rights standards and will not attract more investment, in some cases, the promotion and strengthening of intellectual property protection, it will lead to a decrease in investment; while if it is larger in a market, political and economic situation of stability, growth prospects of the country, strong intellectual property protection on the impact of positive effects of FDI may be greater.

Costly R&D and intellectual property rights protection 2000,Vol.19,No.1-2,2000

Chapter 5

TRIPs on the impact of technological innovation

TRIPs agreement established an international framework for intellectual property protection, making developing countries were affected in the field of achieving and using technology and the industrial development model. Developing countries to achieve rapid economic growth will be more difficult than that in the past, but innovation may be encouraging. Many economists conducted a study in this regard, and obtained some valuable perspective. Sergerstrom builds the dynamic general equilibrium model firstly, in this model, technological innovation has relation with the patent protection period, which concluded that: the strengthening of patent protection in developed countries, may promote technological innovation, but also may decrease the innovation due to more resources put in the production of the invented product. Helpman create the analytical framework about innovation, imitation, intellectual property protection to economic growth. In this analytical framework, it says that: strong intellectual property protection increase the rate of innovation in the initial period in developed countries, but because too many resources are put into the technological innovation process , making the product life cycle longer, the innovation rate drops at last. Edwin L. C Lai found in the dynamic general equilibrium model which includes the product life cycle that developing countries in strengthening the role of intellectual property protection depends on the technology transfer from North to South: If it was transferred through FDI, then the strengthening of intellectual property protection of developing countries will increase the rate of product innovation. If it was carried out by the emulation, then the developing countries to strengthen intellectual property protection will reduce the rate of product innovation. zigic introduces the monopolistic competition market structure into the North-South trade model to do the research and it's found that indicate of North-South trade is not only depends on the rate of product innovation, but also depends on the level of technical knowledge spillovers. When the rate of product innovation is fixed, the equilibrium market structure depends on the strength of intellectual property protection. Guifang Yang and Keith E. Maskus assumed the transfer of technology from developed to developing countries is through the permits. They found through research, stronger protection of intellectual property increases the share of technology transferor, reducing the cost of the transferand increasing the innovation and technology transfer. David M. Gould, and Willian C. Gruben two scholars, used the cross-country data of patent protection and trade regimes to do the research about the effect of intellectual property protection in trade, which showed that the more competitive the market is, the stronger the effect of intellectual property protection promoting the innovation is. For those countries with a high degree of trade protection, the stronger protection of intellectual property will not provide incentives for innovation. Brage and Willmore surveyed more than 3,000 companies in Brazil and found that a strong protection system is more conducive to enterprises to adopt new technologies in the more open countries. Similarly, through a survey of 377 companies in Brazil, Sherwood found that if there is a better legal protection, 80% of the company will invest more in research and development.

Overall, it is necessary to ensure the innovator get profit from innovation through appropriate protection for the innovation results, and to some extent, it can also contribute to long-term economic growth, but the findings also show that over-protection may also have the opposite effect. This is because on the one hand over-protective prevented the spread of new technologies so that it limits the economic growth, on the other hand it would be easy to make the innovative competition, not only making the resources in R & D can not meet the optimal configuration, but also greatly shortening the lifetime of knowledge , resulting in waste of resources. With the introduction of minimum standards of intellectual property protection, TRIPs requests the developing countries to make major reforms in aspect of intellectual property protection. The greatest task for the developing countries is to improve intellectual property protection system to make the intellectual property rights become a powerful tool for promoting of technological innovation, of course, because of financial constraints and the reality of the lack of institutional settings, it is very importance to access the technical assistance from developed countries and international organizations.

Chapter 6

The impact of TRIPs on the economic well-being

On the study of different levels of intellectual property protection's effect on economic welfare, the earliest studies started with the assumes put out by Chin.Judith C. and Gene M. Grossman, for the duopoly model made in 1990, that is, the enterprises in developed countries have the adequate intellectual property protection, and the enterprises in developing countries have no intellectual property protection, on this basis, the study has come to the conclusion that: If there are no intellectual property protection, the developing country's social welfare will be improved; intellectual property protection system in the world does not make all types of national welfare increased. For the developing countries, too much strong protection will damage their benefit. Deardoff introduce the innovation factor in the North-South trade model to test the benefits effects which was brought by patent protection. And it showed that the developed countries always benefit from a stronger protection, while the developing countries will be damaged, the reason is the stronger protection will lead to monopoly prices. Helpman got the conclusion from the analytical framework about innovation, imitation, intellectual property protection to economic growth, that is, strong intellectual property protection improved the terms of trade of developed countries and deteriorated the terms of trade of non-developed countries, so that the least developed countries damage, and the developed countries damage or not depends on different situation. Feinberg and Sousslang using the data in 1986, calculated three values, U.S. corporate earnings, foreign consumer surplus with the United States, foreign corporate earnings. By comparison, the weak intellectual property protection in developing countries makes the economy of whole world increase in net income. Diwan and Rodrik considered that, if developed and developing countries have diffefent focus on the technology or preferences, then developing countries may benefit from the protection of intellectual property and it was beneficial to the whole world that the developing countries strengthened protection of intellectual property rights. Taylor introduced the policy factor in the North-South trade model , and the conclusion was that if the developing countries weakened the protection of intellectual property policies, it would be more difficult for developed countries to imitate, which making the well-being in developing countries declined . David M. Gould, and Willian C. Gruben did the research by using the cross-country data in patent protection and trade regimes, and showed that intellectual property protection is an important determinant of economic growth, namely, the economic growth in the country which the protect system is perfect is stronger than the country that the protect system is imperfec

Above economists analyse the effect about intellectual property protection in developing countries on the economic welfare in different aspects. In conclusion, the dynamics efficiency and welfare gains of intellectual property protection is more than its static efficiency and welfare losses, but the distribution of welfare and efficiency in different types of countries are not the same. For the static analysis, due to the accumulation of knowledge of developing countries is far less than developed countries in the quantity and quality, in the knowledge flows from developed countries to developing countries, on the one hand it increase shares of the renter, on the other hand, developing countries compete in the weakening trend of the rising costs of monopoly, which in this case, developing countries will suffer. From the dynamic point of view, the current frameworks for theoretical analysis are few, but the view that developing countries to strengthen intellectual property protection would lead to decreased well-being is no longer compelling words as in the past. But the static and partial equilibrium welfare analysis is often with some limitations and one-sidedness, and if we can do research in the dynamics view of long-term effects which intellectual property protection makes to economic welfare, then its conclusion is relatively more scientific and practice-oriented.

Chapter 7


Based on the above analysis we can see that, TRIPs impact on economic development issues are relatively new areas of research, and the effects of intellectual property protection to FDI, international trade, technological innovation and economic well-being remain to be further in-depth exploration. But some points the economists conclude in the study are still worthy to learn for the developing countries.

1. With the TRIPs been incorporated into the WTO system of rules, intellectual property protection will be increasingly involved in wide range of products, and intellectual property protection will also be getting longer and longer period of protection and intellectual property from low to high intensity of the transition is an inevitable trend. The primary disadvantages of low-level intellectual property protection is to impede the inflow of foreign technology. Because it faces the risk of losing competitive advantage in the market, the technical output side will choose not to transfer technology to the country or by other means to balance the possible loss, such as raising the transfer price, or even imposing political conditions. And a highly robust intellectual property protection system, not only can be used as market signals to stimulate FDI inflows, to some extent, but also can make the expansion of the size of carry trade and promote the smooth development of technology exchange and protect domestic enterprises innovation. Therefore, the developing countries to strengthen national intellectual property protection is an inevitable choice.

2. Economists generally believe that the promotion of economic growth in open conditions has three main factors: first, division of labor, and second, accumulated experience, three, knowledge spillover. Since the accumulation of knowledge is an important source of economic growth, knowledge spillover from developed to developing countries should be an important way for lag behind the country's economic growth. Thus, developing countries should use the TRIPs provisions reasonably and effectively to service for the accumulation of knowledge and the economic growth. For example, developing countries can make use of the transition policy of TRIPs provisions to get knowledge spillover benefits in low cost as far as possible in the short term. It can also be used the abuse of intellectual property rights in the TRIPs provisions and compulsory licensing provisions, in order to have full access to the strategic knowledge resources.

3. At present the main ways of accumulating knowledge in developing countries is to absorb the existing knowledge on the basis of a smaller innovation, and a country's absorption of knowledge is a requirement for variety of intellectual capital, support systems and the system is constantly upgrading and deepening of the process. Without such an endogenous growth process, a country will lose the ongoing technical development power and stops on the lowest level of knowledge fortress. Therefore, how developing countries t to make intellectual property strategy based on their own developmen, and makes the intellectual property strategy and other strategies, such as human resources, institutional, legal, cultural and other strategies to achieve consistent, and make the intellectual property protection become an effective tool for promoting the domestic accumulation of knowledge, is a very crucial task.

4. As an important component of the policy, intellectual property protection's effect should be subject to a number of factors, including the country's economic development level, market economy, improvement of technological innovation ability, and even a country's cultural and psychological factors, while different industries, different sectors have different influence. Therefore, when the developing countries makes the intellectual property policies, they should evaluate the potential costs and benefits and ensure the implementation of intellectual property policies to minimize costs and maximize the benefit for the necessary complementary policies reform.