. Conclusion
This paper examines the hypothesis that trade increases innovation and economic
growth by facilitating access to foreign technology and it also investigates the importance
of IPRs and FDI inflows in these processes. It complements the previous literature by
focusing on high-technology trade and by considering a more representative sample of
both developed and developing countries.
The results for the pooled sample suggest that market size, high-technology imports
from developed countries, the stock of human capital, the level of R&D expenditures,
infrastructure, and the level of IPR protection are all important factors in explaining the
rate of innovation. Additionally, a country’s stock of physical capital is very relevant in
explaining per capita GDP growth. And foreign technology (measured as the growth of per
capita high-technology imports) has a stronger impact on per capita GDP growth than
domestic technology.
However, when the sample is split between developed and developing countries,
the results suggest that the dynamics of innovation and growth differ across these two
groups of countries. Market size and infrastructure are the dominant factors in
explaining innovation in developing countries; while high-technology imports, human
capital, and R&D expenditures appear to have a stronger impact on developed
countries.
The results regarding intellectual property protection are interesting. They suggest
that IPRs have a stronger impact on domestic innovation for developed countries and
might even negatively impact innovation in developing countries. These results may be
indicative of the fact that most innovation in developing countries may actually be
imitation or adaptive in nature. Therefore, providing stronger IPRs protects foreign firms
at the expense of local firms. The policy implication here is not to discourage
intellectual property protection in developing countries, but to generate incentives for its
strengthening. Innovative activities and IPRs are complementary in nature; therefore,
developed countries would benefit by supporting R&D activities in developing
countries.
By contrasting empirical specifications for innovation and per capita GDP growth, the
results in this paper suggest that traditional growth regressions might be unable to fully
capture the impact of specific factors like IPR protection which might affect growth only
indirectly. At a broader level, this paper highlights the importance of conducting studies
that are inclusive of both developed and developing countries and suggests that pooling
together developed and developing countries might lead to misleading conclusions, and
consequently to inadequate policy recommendations.