International Technology Transfer: KAMAL SAGGI (SMU) Presentation at the AIPPI Forum Singapore October 6th, 2007

Transcription

1 International Technology Transfer: Trade,, FDI, and IPRs KAMAL SAGGI (SMU) Presentation at the AIPPI Forum Singapore October 6th, 2007

2 Overview Why is international technology transfer (ITT) important for economic development? Through what channels does it occur? How pervasive is it? Does strengthening global IPR protection lead to more ITT? 2

3 Channels of International technology transfer Difficult to gauge overall magnitude. Trade (especially in capital goods): Products embody ideas. Capital goods: in 1975, approximately 23% of total world trade; ; in 1996 over 30%. Foreign Direct Investment (FDI). Many other channels: movement of people, scientific literature,, etc. 3

4 Trade (% of GDP) World Low & middle income 4

5 Payments for ITT Global payments of fees and royalties for technology transfer increased from $0.85 billion to $100 billion during Such payments measure direct trade in technology and are a very conservative lower bound on the extent of ITT. An explosion in such ITT (see( figure). 5

6 Royalty and license fees, payments (BoP, current US$) (bill) World Low & middle income High income Low in 6

7 Scale of FDI Today, intra-firm trade accounts for approximately one-third of total world trade. Sales of subsidiaries of multinationals exceed worldwide exports of goods and services. While most FDI occurs between industrialized countries, developing countries are becoming increasingly important host countries for FDI (now hold 27% of the global FDI stock). 7

8 ,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Global Stock of FDI (Billions USD)

9 Percent of global FDI stock in developing countries

10 Local technology spillovers from FDI? In a typical year, roughly 75% of global royalty payments are intra-firm firm. Multinationals transfer newer technologies internally and license older ones. Does technology diffuse locally? If so, how? Demonstration Effects Labor Turnover Vertical Spillovers 10

11 Economics of IPR protection What is the economic rationale for IPRs? Classic and powerful answer: : Trade-off between incentive for innovation and monopoly pricing. Dynamic efficiency requires static inefficiency. But there is more to the story: optimal IPRs need to account for the cumulative nature of innovation -- new ideas build on old ones. 11

12 Economics of IPR protection (2) Even w/o IPRs,, innovators have first-mover advantage: imitation is often costly and time consuming. So how necessary are IPRs really? Innovation often precedes w/or IPRs financial securities; software was not protected historically. Patents and other IPRs can generate socially wasteful rent-seeking much like any type of trade protection. 12

13 Economics of IPR protection (3) Globalization also implies innovators profit from a bigger market and IPRs may need to be weaker rather than stronger! IPRs surely make sense when fixed costs of innovation are truly large and imitation is cheap. But both things may not often co-exist. exist. 13

14 IPR protection and ITT What about countries that do not have much innovative capacity (as yet)? Case for stronger IPR protection in such countries has to rest on global response to changes in local policies Key question: will IPR reform lead to more ITT and inward FDI?. 14

15 IPRs and ITT (contd.) Rosy scenario: : stronger IPRs in developing countries will lead to more innovation and ITT. Do we have any supporting evidence for this? A qualified yes. TRIPS only 12 years old and the poorest countries have been given extra time to comply. Still, patent filing behavior and production shifting via FDI has begun to already respond (see figure). 15

16 Patent applications, residents (thou) World Low & middle income High income Low in 16

17 Patent applications, nonresidents (thou) World Low & middle income High income Low in 17

18 TRIPS and ITT Historically, much ITT occurred when TRIPS was absent and sovereign nations were free to pursue IPR policies of their choice. Developing countries today face new constraints. TRIPS agreement: harmonization of IPR protection across countries; have to enforce standards chosen by other countries. 18

19 TRIPS and ITT (2) Is such harmonization efficient? Is it equitable? Existing literature suggests that it might be neither but it also acknowledges the free-rider rider problem that arises due to a handful of countries paying the costs of R&D that benefits the whole world. 19

20 TRIPS and ITT (3) Is strengthening of IPRs in developing countries conducive to ITT? Has it lead to more FDI? Will it continue to do so? Literature divided: some view TRIPS as purely a rent shifting device while others have presented some evidence in favor of increased ITT. 20

21 TRIPS and ITT (4) Articles 66 and 67 are supposed to facilitate ITT. But progress has been limited. Encouraging ITT will require greater cooperation from industrialized countries as well as policy reforms by developing ones. Key constraint on ITT is limited absorptive capacity. 21

22 THANK YOU! 22