This paper extends the established Helpman (1993) model by introducing international capital movement, and obtains new results concerning the welfare implications of tightening intellectual property rights (IPR) in the South. First, if separated capital markets in the North and the South are integrated, enforcement of IPR would have more desirable welfare effects in both regions. Second, when international capital movement is allowed, the North always gains from the tightening of IPR if the imitation rate is sufficiently high. This implies that the North's demand on the South to tighten IPR becomes stronger as the integration of international capital markets progresses.

The debate between the North and the South about the enforcement of intellectual property rights in the South is examined within a dynamic general equilibrium framework in which the North innovates new products and the South imitates them. A welfare evaluation of a policy of tighter intellectual property rights is provided by decomposing a region's welfare change into four components: terms of trade, production composition, available product choice and intertemporal allocation of consumption spending. The paper provides a theoretical evaluation of each one of these components and their relative size. The analysis proceeds in stages. It begins with an exogenous rate of innovation in order to focus on the first two components. The last two components are added by endogenizing the rate of innovation. Finally, the paper considers the role of foreign direct investment.

This paper theoretically and empirically analyzes the effect of strengthening intellectual property rights in developing countries on the level and composition of industrial development. We develop a North-South product cycle model in which Northern innovation, Southern imitation, and FDI are all endogenous. Our model predicts that IPR reform in the South leads to increased FDI in the North, as Northern firms shift production to Southern affiliates. This FDI accelerates Southern industrial development. The South's share of global manufacturing and the pace at which production of recently invented goods shifts to the South both increase. Additionally, the model also predicts that as production shifts to the South, Northern resources will be reallocated to Ramp;D, driving an increase in the global rate of innovation. We test the model's predictions by analyzing responses of U.S.-based multinationals and domestic industrial production to IPR reforms in the 1980s and 1990s. First, we find that MNCs expand the scale of their activities in reforming countries after IPR reform. MNCs that make extensive use of intellectual property disproportionately increase their use of inputs. There is an overall expansion of industrial activity after IPR reform, and highly disaggregated trade data indicate an increase in the number of initial export episodes in response to reform. These results suggest that the expansion of multinational activity more than offsets any decline in the imitative activity of indigenous firms.

This paper sets up a vertically related market model in which imitation and innovation are endogenously determined to study the impact of intellectual property rights (IPR) protection on less-developed countries. It shows how a less-developed country switches from imitation to innovation as it develops. It is also found that the relationship between IPR protection and economic development is -shaped. The IPR protection tends to go down and then go up as income rises. This finding also conforms with that in the empirical literature on IPR protection.

This paper develops a product cycle model with endogenous and costly innovation, imitation, and foreign direct investment (FDI) to address the concerns of developing nations that stronger intellectual property rights (IPR) protection would force them to waste scarce resources 'reinventing the wheel.' With stronger IPR protection, multinationals become safer from imitation, but no safer than Northern firms. Imitation becomes a more predominant channel of international technology transfer relative to FDI. Stronger IPR protection displaces FDI due to aggravated resource scarcity in the South. Reduced FDI transmits resource scarcity in the South back to the North and consequently contracts innovation.