Effects of patent protection on economic growth and welfare in a two-R&D-sector economy

• Published in: Economic modelling Vol. 62; pp. 124 - 129
• Main Author: Saito, Yuki
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.04.2017
• Subjects: Economic growth; Patent protection; R & D; O34; O31; Economic growth; Patent protection; R & D
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2017.01.015

This paper examines the effects of patent protection in a growth model, where final goods firms and intermediate goods firms engage in R&D. The results show that: (i) strengthening patent protection is likely to increase the technology level of the final goods sector relative to the intermediate goods sector in most cases; (ii) if R&D productivity in the final goods sector is lower than that in the intermediate goods sector, the relationship between patent protection and economic growth is an inverted-U shape; and (iii) an increase in R&D productivity in the intermediate goods sector can reduce the welfare-maximizing level of patent protection. •The paper develops a quality-ladder model where firms in both the final and intermediate goods sectors invest in R&D.•Strengthening patent protection is likely to lead to final-goods-biased technical change in most cases.•The paper finds that there is an inverted-U relationship between patent protection and economic growth.•An increase in R&D productivity in the intermediate goods sector can reduce welfare.