The Impact of Intellectual Property Rights on Trade Flows in Developing Countries: Regional Spillovers and Policy Trade-offs

This research examines the impact of Intellectual Property Rights (IPRs) on trade flows in developing countries, focusing on both exports and imports while incorporating regional spillover effects. IPRs play a critical role in shaping trade dynamics, yet their effects on developing economies remain complex. While proponents argue that stronger IPRs encourage knowledge-intensive trade, critics contend they limit access to affordable imitation goods, potentially hindering industrial development. A fixed-effects regression model, building on Klein 2018's framework, is employed to analyze the impacts of strengthened IPRs on trade flows at both the aggregate and industry levels. This study distinguishes between high-tech and imitation-based industries to determine whether stronger IPRs benefit knowledge-intensive exports or merely increase dependency on imported patented goods. For the measure of IPRs, the analysis uses the Ginarte and Park (1997) country-specific Intellectual Property Index (IPI), covering 122 countries from 1960 to 2015. The index evaluates five broad categories of patent protection and has been updated every five years, capturing both major institutional reforms and minor adjustments in IPR law and enforcement. Based on prior research, this study hypothesizes that while IPR reforms boost imports of technology-intensive goods, they reduce exports in imitation-driven industries, posing trade-offs for developing economies. Extending existing literature, which primarily assesses the impacts of IPR reforms at the national level, this study incorporates regional spillover effects to examine how weaker IPR regimes may free-ride on stronger neighbors, distorting trade patterns. These findings inform ongoing policy debates on whether developing nations should unilaterally strengthen IPRs or pursue coordinated regional agreements to optimize trade benefits. By providing empirical insights into the role of IPRs in economic development, this study informs policymakers seeking to balance innovation incentives, industrial growth, and trade competitiveness in developing regions.