Economic Development and Patenting Behaviour

8/8/2019 Economic Development and Patenting Behaviour

http://slidepdf.com/reader/full/economic-development-and-patenting-behaviour 1/8

Special article

Economic & Political Weekly EPW june 7, 2008 39

e onom D v o m n nd p n ng B h v ou

Biswajit Dhar, C Niranjan Rao

The capacity of countries to take advantage of thepatent system bears a relationship with their stageof development. This paper explores the relationshipbetween economic development and domesticand foreign patenting behaviour. The study uses aunique data set covering 55 countries and 24 years.It determines the association of domestic patentingwith gross domestic product per capita and opennessto trade, and the association of foreign patenting withthese variables and with foreign direct investment as aproportion of gdp .

The use o patents data as an indicator o inventive activity has long evoked considerable interest among students o technology over several decades. Although several ques-

tions have been raised about the veracity o using patent data tomeasure technological progress across countries, this indicatorhas remained “as a mirage o wonder ul plentitude and objectiv-ity” in a desert o data or answering questions about the “rate o technical and scienti c progress” over “time and across indus-tries and national boundaries” [Griliches 1990]. The questionsthat the patent data help us answer are o considerable impor-tance in a world where technology has become the prime motive

orce or economic development.But while the levels o patenting activity across countries are

o considerable signi cance or explaining the relative levels o technological advancement, what is equally important is tounderstand the determinants o the observed levels o patenting.This is an issue that requires to be investigated at some depth ortwo reasons. The rst and the more obvious o the reasons is thatcountries have historically displayed considerable di erences intheir levels o patenting, which need some cogent explanations.The second reason, one that has its genesis in the ongoing dis-

cussion on the evolving regime o intellectual property protec-tion, is that the levels o patent protection that the countriesshould provide, need to be in keeping with their developmentneeds. What this argument alludes to, in other words, is that thecapacity o the countries to take advantage o the patent regimesbears a relationship with their stage o development. 1 These aresome o the issues that the present paper would try to address by relating patenting activity in 55 countries over a 24-year period toa comparable set o development indicators.

The paper is organised as ollows. Section 1 reviews the litera-ture on determinants o domestic and oreign patenting activities.Section 2 deals with the limitations o patent data as a measure o inventive activity, inter-country comparability o patent data andusing patent applications data. Section 3 provides a description o the database used in the study. In section 4 we discuss the modelsused and report the results o regressions. Section 5 concludes.

1 l u r v w

In this section we will present a brie review o relevant literature by re erring to studies that explain either domestic or oreign patentingbehaviour or both in an inter-country comparative ramework.

1.1 Dom s p n ng B h v ou

Vayrynen (1977) estimates Spearman’s rank-order correlationcoe cients or 10 A rican countries between patents granted(both domestic and oreign) per capita and GDP and GDP per

The work on this artic le was done at the Research and In ormationSystem or the Non-aligned and Other Developing Countries, New Delhi.We are thank ul to the World Intellectual Property Organisation,Geneva, or unding the research project rom which this paper

was generated.

Biswajit Dhar ( [email protected] ) is with the Centre or WTO Studies,

Indian Inst itute o Foreign Trade, New Delhi. C Niranjan Rao([email protected] ) is with the Centre or Economic and SocialStudies, Hyderabad.



Special article

june 7, 2008 EPW Economic & Political Weekly40

capita, both or 1971. While GDP has been taken as a measure o the market size, GDP per capita has been taken to represent thelevel o development. The correlation coe cients obtained orboth sets o relationships, viz, patents and GDP and patents andGDPper capita were quite signi cant -0.90 and 0.85 respectively.

Schi el and Kitti (1978) try to explain the behaviour o domes-tic patent applications in a set o ve countries, viz, Canada,

France, West Germany, Japan and the United States ( US). Theexplanatory variable taken or this exercise was research anddevelopment (R&D) expenditures, lagged by two years. The datacovered the period 1963-74 or all countries except Japan or

which the data covered the period 1967-74. The results showedthat while or Canada and Japan, the R&Dcoe cient was positiveand signi cant, or West Germany, it was negative and signi -cant. For France and the US, the R&D coe cient was not signi -cant. These results, according to the authors, were obtainedbecause o the di culties in measuring R&D expenditures.

Soete (1981) explains domestic patenting in 19 Organisationor Economic Cooperation and Development ( OECD) countries.

The dependent variable taken or this exercise is the log o domes-tic patent applications per capita, averaged or the years 1976-78and the independent variable is R&D spending per capita in thebusiness enterprise sector or the year 1975. The author nds thatR&D spending in the business enterprise sector is positive andsigni cant in explaining domestic patents.

Watanabe (1985) estimates correlation coe cients betweenthe log o resident patent applications per capita, log o grossdomestic manu acturing product per capita ( or 53 countries, 16o which are industrialised) and log o GNP per capita ( or 60countries, 21 o which are industrialised) or the year 1979. This

study shows that a positive and signi cant relationship existsbetween the variables.

1.2 Fo gn p n ng B h v ou

Schi el and Kitti (1978) try to explain oreign patenting activity in the US taking place rom Canada, France, West Germany,Japan, the Netherlands, Sweden, Switzerland and the UnitedKingdom ( UK). In this study, the independent variables areexports to the US originating in the concerned country anddomestic patents granted in the concerned country. The periodcovered by this study is 1965-74 or all countries, except theNetherlands or which it is 1965-73. The results obtained showthat domestic patenting is related in a positive and signi cantmanner or Switzerland, while it is negative and signi cant orthe Netherlands. For all other countries, it is not signi cant. Theexports var iable is positive and signi cant or all countries except

or the Netherlands.In the same paper, Schi el and Kitti also try to explain oreign

patenting in Japan by applicants rom Canada, France, West Ger-many, the Netherlands, Sweden, Switzerland, the UK and US. Asin the earlier case, the independent variables are exports to Japan

rom the concerned country and domestic patents in the con-cerned country. The period covered or this exercise is identical

to that considered or the earlier case. In the case o Japan,domestic patents as an explanatory variable are ound to bepositive and signi cant or Canada and Switzerland and negative

and signi cant or West Germany and Sweden. For all othercountries, it is not signi cant. The exports variable is positive andsigni cant or Canada, Sweden and Switzerland and not signi -cant or all the other countries.

The paper by Bosworth (1980) explains oreign patentingby the US in 50 countries in the year 1974. The explanatory

variables taken are GDPand GDPper capita in the receiving coun-

try and exports o the US and oreign investment (the number o oreign rms being used as a proxy) rom the US to the concerned

country. The log-linear results show that all the independent variables are positive and signi cant but only exports and

oreign direct investment variables are signi cant at 1 per centlevel o signi cance.

Soete (1981) tries to explain patenting behaviour o oreignapplicants rom 17 OECD countries in ve o the major patentgranting countries, viz, France, West Germany, Japan, the UK and US. While the dependent variable is the number o patentsgranted averaged or the years 1976-78, the independent variableis the R&D expenditure o the business enterprise sector or the

year 1975. It is interesting to note that domestic R&D expenditureis being used to explain oreign patents being taken in that par-ticular country. The log-linear results o regression between or-eign patents per capita and business enterprise R&D per capitashow positive and signi cant relationship or all the countries.

Bosworth (1984) tries to explain the patenting activity o theUK abroad. He uses a cross section o data or 50 countries or the

year 1974. The explanatory variables are GDP, GDP per capita,exports rom the UK to the concerned country and size o multina-tional operations (the number o the UK subsidiaries in the con-cerned country is used as a proxy). The log-linear regression shows

that all the independent variables are positive and signi cant.In the same paper, Bosworth also tries to explain oreign pat-

enting activity in the UK. He uses a cross section o data or 22countries or the year 1974. The explanatory variables are importsinto the UK rom the concerned country, size o multinationaloperations rom that country (the number o subsidiaries romthe originating country being used as the proxy) and domesticpatenting in the originating country. The log-linear regressionshows that the size o multinational operations rom thatcountry and domestic patenting activity o the concerned country are positive and signi cant, while imports rom that country tothe UK is not signi cant in explaining oreign patenting activity in the UK.

Eaton and Kortum (1996) try to explain the fow o patentapplications among 19 OECD countries or the year 1988. Theexplanatory variables are human capital (average years o school-ing), imports o one country rom the concerned country relativeto one’s GNP, the ratio o R&D scientists and engineers to totallabour orce and relative productivity o one country in compari-son with the concerned country. The log-linear equation explain-ing the ratio o patent applications and total labour orce showsthat human capital, intensity o R&D scientists and engineers’employment and relative productivities are positive and signi -

cant, while import intensity is not signi cant. This equation alsocontains our variables that can be used as an indicator o thestrength o the patent system. The authors nd that while



Special article


countries providing strong patent protection attract more oreignpatents, patent strength and domestic patenting activity are notso related.

It is interesting to note that except one, all the studies wereconducted during 1977-85. Considering the importance o theissue and the intense controversy it generated, one would haveexpected more studies, which explain determinants o domestic

and oreign patenting. The studies reviewed above, which covermostly developed countries are disparate and not comparable.Hence we cannot draw any overall conclusions. Our attempt in thispaper is to address these limitations in the available literature.

2 l m ons of p n D

Any exercise that tries to explain cross-country patentingbehaviour should necessarily look at the quality o data thatare available. Comparison o patent data across countries, in our

view has several problems, which we would discuss in this sec-tion. These problems could be grouped under three broadheadings relevant or our study: (1) patents as indicators o inven-tive activity, (2) international comparability o patent data; and(3) use o patent applications data.

2.1 p n s s ind o s of inv n v a v y

One could expect that all patentable inventions would be pat-ented. But, in act, not all patentable inventions are patented.Mans eld (1986) estimates that while in the pharmaceutical, oiland machinery industries more than 80 per cent o patentableinventions are patented, it is only 60 per cent in the case o pri-mary metals and automobile industries. The inter-industry di -

erences in propensity to patent arise rom the act that while

some industries such as pharmaceuticals depend on patent pro-tection as an appropriation mechanism, others do not. Taylor andSilberston (1973) showed that the ne chemical industry ingeneral and the pharmaceutical industry, in particular, dependon the patent system. Ease o imitation is one o the reasons orthis industry’s reliance on the patent system. The aircra tindustry, or example, depends much less on the patent system,

while they spend heavily on R&D, their output in terms o patentsis very small.

There are considerable di erences in quality among patents.While a ew patents represent signi cant advancements in tech-nology, most others do not appear to be so. One o the major con-tributors to the vastly varying quality o patents is the di erencesin interpretation o patentability criteria by patent o ces. 2 Thepatentability criteria, viz, novelty, non-obviousness and indus-trial applicability are di cult concepts to de ne and implementprecisely. This point can be corroborated by the act that a signi -cant proportion o patents whose grant is challenged is held to beinvalid by courts. One reason given is that patent o ces do nothave the resources to do a thorough examination o each andevery patent, 3 whereas a court is obliged to conduct a throughexamination o a patent be ore determining its validity [Engel1985; Federal Trade Commission 2003].

There have been attempts to quanti y di erences in the qual-ity o patents through the use o number o claims in a patentspeci cation, renewal in ormation and citations. The most

success ul o these attempts have been the patent renewal models.These models have tried to capture the requirement mandatedin several national patent laws that a patent has to be renewedperiodically or it to be e ective through its complete term. Themain reason behind this requirement seems to be to avoid givinga longer lease o li e to the economically unviable patents. We canthere ore assume that a patent, which has been renewed so as to

complete the entire term o protection, is more valuable than theone, which was allowed to lapse. This in ormation has been usedto model patent renewal by Pakes (1986) and Schankerman andPakes (1986). Using the patent renewal in ormation and patent

ee schedules, Schankerman and Pakes (1986) have shown thatthe distribution o private value o patents is highly skewed,

while a ew patents are very valuable a large majority o patentshave low value.

Firm level di erences in propensity to patent arise rom thestrategic perspectives o these rms towards R&D and patenting.Finally, these inter-industry and inter- rm propensities couldchange over time.

2.2 in n on com b y of p n D

Patent data may not be comparable among countries because o di erences in patent laws. 4 There are vast di erences in patentlaws o di erent countries. That a country’s patent law wouldinfuence the patent output o that country has been accepted asa truism. Hence, it could be argued that patent data across coun-tries are not strictly comparable. In other words, i we have tocompare patent data across countries, the patent laws in thesecountries should be the same. But in reality no two patent lawsare the same. Further, these di erences in patent laws are o ten

accentuated by the di erences in practices o the patent o ces ininterpreting these laws and ultimately the en orcement o these provisions.

The di erences in patent laws could arise because o variousprovisions. The more important among these are patentability criteria, coverage, duration, compulsory licensing and de nitionso residents. Moreover, these laws could change over time. Butthe changes in patent laws are not very requent.

The generally accepted patentability criteria are novelty (new),non-obviousness (inventive step) and industrial applicability (use ulness). 5 In addition, there are di erences in the manner in

which patent law de nes novelty, either as novel in the world oronly in the country concerned. Disclosure requirements, whichare supplementary criteria o patentability, may also vary acrosscountries. Some countries have only a patent registration system

where there are only requirements o orm to be ul lled and nosubstantive examination o patent application takes place. Someo the ormer colonies had or have a dependent patent systemlinked to the ormer colonial power, or example, Hong Kong andSingapore. Australia, Germany, Japan and the Netherlands ol-lowed a “de erred examination system” where substantive exam-ination takes place only i speci c request has been made withina speci ed period, which can be up to seven years rom the date

o application [ UNCTAD1975].Di erent countries have excluded speci c sectors rom theambit o patenting at di erent times. Among the sectors that



Special article


have been excluded were: pharmaceutical product patents, phar-maceutical process patents, ood products, ood processes,chemical products, methods o treatment o human or animalbody, cosmetics, ertilisers, mixture o metals and alloys, agricul-tural machines and anti-contaminants. The other explicit exclu-sions ound in some countries are animal varieties, plant varie-ties, biological processes or producing animal or plant varieties,

micro-organisms and substances obtained by microbiologicalprocesses. Computer programmes and nuclear inventions havealso been excluded by certain countries [ WIPO 1988].

The duration o patent protection is another important sourceo di erence in the patent laws o countries. The patent termcould not only vary among countries, it could also be di erent ordi erent sectors within a country. Moreover, the date on whichthe term o the patent protection starts could vary across coun-tries, the most important o which are the date o application andthe date o grant.

There could be important di erences in the way the compul-sory licensing provisions are incorporated in a patent law. Whilemany countries in the world have compulsory licensing provi-sions in their patent law to check possible abuse o patent mono-poly, the US is the only country, which uses anti-trust provisionsto the same e ect. Many developed 6 countries, which had strongcompulsory licensing provisions in the past, diluted them in later

years as they attained technological capability. Developing coun-tries, which inherited colonial patent laws, re ormed their patentsystems in the late 1960s and early 1970s, an important compo-nent o which was to have compulsory licensing provisions. As o the late 1980s, while developed countries had less stringent com-pulsory licensing provisions, many developing countries had

strong compulsory licensing provisions. Non-working o the pat-ent is the main ground on which compulsory licences can begranted in a large number o countries (ibid). The other groundson which a compulsory licence can be given are public interest,satis action o the reasonable requirement o the public, needs o export market and public health. The presence o compulsory licensing provisions may a ect patent output, or instanceScherer (1977) in a survey o the US rms nds that anti-trustdecrees involving compulsory licences discourage rms’ propen-sity to patent.

Generally, the scope o patent rights covers making, sellingand using the patented product in the case o product patent andusing and selling a product directly obtained by a patented pro-cess. There are signi cant di erences among countries in incor-porating importation as a right o the patent holder. While somecountries explicitly include importation as a right o the patentholder, other countries do not explicitly mention it.

Finally, there are di erences in the de nition o residents andnon-residents among countries. While in the US “the concept o residence is determined by the place o residence o the rst-named inventor rather than that o the applicant”, in Japan “theconcept o residence is determined by the nationality o theapplicant rather than the country o residence o the applicant”.

All the other countries consider residence o the applicant ratherthan the nationality or making the distinction between oreignand domestic patentees.

Similarly there may be di erences in the quality o patentsgranted. This may be because o di erences in the practices o the patent o ces in interpreting the various provisions o thepatent law. One reason or this could be the subjective element,

which normally surrounds these provisions. Another reasoncould be the di erences in capabilities o patent o ces. Many apatent o ce in developing countries may not have the human or

material resources, which are required to implement a patent lawsatis actorily.

There are di erences in the en orcement o patent rights acrosscountries. While many countries have only civil remedies in thecase o in ringement, a ew countries have criminal provisions.The courts play an important part in the en orcement o patentrights and their practices di er among countries.

Another source o di erences in patent counts, which makesinter-country comparisons di cult, is the number o claimsallowed or each patent. Japanese patent counts seem to be exag-gerated because o practice o granting a patent or each claim,

while in case o other countries, patents contain multiple claims.The two most important actors a ecting the patent output o

a country could be the “strength” o the patent law and techno-logical capability. We can assume that a “strong” patent system

would generate more patents than a “weak” one but two coun-tries at di erent levels o technological capabilities having thesame “strong” patent system would not have the same patent out-put. Hence, technological capability has a strong infuence on thepatent output o a country. We assume that the technologicalcapability o a country has more infuence than the patent systemin determining the patent output o that country.

2.3 Us of p n a ons DWe propose to use data relating to patent applications rather thanpatents granted or our analysis. Although there are a ew limita-tions o using the applications data, the most important o whichbeing the act that only some o the applications are granted pat-ents, there are a number o compelling reasons justi ying theiruse in an exercise o the kind undertaken here. The rst and the

oremost reason or using data on patent applications is that whilepatent applicants decide the date o application, the practices o patent o ces determine the date o grant. 7 Furthermore, applica-tions or patents submitted in a year belong to that particular

year but grants or a particular year contain applications made indi erent years. Data on patent applications are there ore muchmore comparable across countries than the data on grants are,[Eaton and Kortum 1999] and hence, our reliance on ormer dataset. We recognise that the ideal data set would have been grantdata arranged according to date o application but such a data setis not available.

3 D b s fo S udy

The source o data on patenting activity o di erent countries isthe World Intellectual Property Organisation’s annual compilation

Industrial Property Statistics . We have collected data on patent

applications and grants or residents and non-residents8

or theperiod 1975-98. 9 The choice o 1975 as the initial year or the study was driven by the consideration that patent laws were in the process



Special article


o being changed in many countries, during the late 1960s andearly 1970s and this process was completed by mid-1970s.

Data on patents as is reported by the Industrial Property Statis-tics include patents, inventors’ certi cates, patents o importa-tion, patents o introduction, revalidation patents, precautionary patents and petty patents.

The data set used or analysis in this study contains 55 coun-

tries, out o which, 20 are developed countries and 35 are devel-oping countries. 10 These countries are Argentina, Australia, Aus-tria, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia,Costa Rica, Denmark, Ecuador, Egypt, El Salvador, Finland,France, Germany 11, Greece, Guatemala, Honduras, India, Iran,Ireland, Israel, Italy, Jamaica, Japan, South Korea, Malaysia,Mauritius, Mexico, Morocco, the Netherlands, New Zealand,Norway, Pakistan, Panama, Peru, the Philippines, Portugal,South A rica, Spain, Sri Lanka, Sweden, Switzerland, Thailand,Trinidad and Tobago, Tunisia, Turkey, the UK, the US, Uruguay,

Venezuela and Zimbabwe.Out o the 55 countries in our sample, 51 countries have com-

plete data ( or all the 24 years) and our countries have incom-plete data ( or less than 24 years). The our countries with incom-plete data along with the period or which data are unavailableare: China (1975-84); Malaysia (1975-84); Thailand (1975-78) andZimbabwe (1975-78). While China adopted a patent system only in 1984, Malaysia had a re-registration system until 1983. Thai-land enacted a patent law only in 1979 and Zimbabwe did notreport during the period 1975-78. This makes our data set anunbalanced panel data.

The patent data in Industrial Property Statistics is based on vol-untary reporting by countries. In other words, i a country

reports, data are included otherwise it is omitted. There is nomechanism to address the problem o non-reporting by countries.The extent to which countries provide patent data may be takenas an indicator o how important they elt the patent system to be.Some countries report only total applications without giving abreak up o resident and non-resident applications. Only 20 coun-tries have provided data or each year, along with the break upbetween residents and non-residents during the entire periodunder study.

Out o the 55 countries in our sample, 30 countries have notreported or at least one year and one country did not give abreak-up between residents and non-residents or at least one

year. Five countries did not report and did not give a break-upbetween residents and non-residents at least or one year. Wehave tted a trend equation or available data and then estimated

or the missing years. 12 In cases where the break-up between resi-dents and non-residents are not available, we have used the aver-age proportions or the nearest available years. Out o a total1,292 observations in our database, the non-reporting obser-

vations were 158 (12.2 per cent) and no-break-up betweenresidents and non-residents were 16 (1.2 per cent) making a totalo 174 (13.4 per cent). The countries or which we had to estimatethe missing data are: Argentina, Bolivia, Brazil, Chile, China,

Colombia, Costa Rica, Ecuador, Egypt, El Salvador, Greece,Guatemala, Honduras, India, Iran, Iraq, Ireland, Italy, Jamaica,Japan, South Korea, Malaysia, Mexico, Morocco, Pakistan,

Panama, Peru, the Philippines, South A rica, Sri Lanka, Thailand,Trinidad and Tobago, Tunisia, Turkey, Uruguay, Venezuelaand Zimbabwe.

Besides the problems with the data set mentioned above, thereis yet another relating to Japanese patent data. The count o pat-ent applications in Japan is not comparable with patent counts inother countries or the ollowing reason. While the practice o

patent o ces in all the other countries is to grant one patent withmultiple claims, Japan has ollowed the unique practice o grant-ing patents covering each o the claims. Hence, the patent counts

rom Japan are infated. Thus, “Okada (1992) nds that Japanesepatents granted to oreigners contain on average 4.9 times asmany inventive claims as those granted to Japanese inventors”[re erred to in Eaton and Kortum 1996]. Following the above-mentioned studies, we have also made the necessary adjustmentsto make Japanese patent data comparable to that o the othercountries. With these modi ed patent counts, Japan was placedthird during 1975-79 and second during 1980-98 in the overalldomestic patent ranking, it overtook Germany in 1980.

4 D v o m n nd p n ng a v y

In this section, we will analyse the relationship between selectedmacroeconomic variables and patents. The eature o the exer-cise that has been undertaken in this paper is that this is the rststudy, which tries to explain the patenting behaviour o a largecross section o countries through macroeconomic variables.

One o the most contentious issues in the discussions on theinternational patent system that been addressed over severaldecades and has yet remained unresolved is whether countries atdi erent stages o development can take advantage o the patent

system by generating patentable inventions [Pretnar 1953]. Thedeveloping countries argued at various international ora thattheir stage o technological development, which is a mani esta-tion o their overall development, requires a “lesser” level o pat-ent protection than that provided or in the developed countries.These countries have also pointed to the act that developedcountries in their earlier stages o technological developmentadopted relatively “weak” patent regimes and it was only a terthey achieved a certain level o technological capability that they opted or a “strong” patent system. It is this argument that is the

ocus o our analysis here.The source o the data or the macroeconomic variables is the

World Bank’s annual publication World Development Indicators .The GDP per capita is in 1995 constant dollars. German uni ca-tion in 1991 creates a break in its time series data on macro-economic variables. We have taken the patent gures only orWest Germany. While the macroeconomic data pertains to WestGermany rom 1975 to 1991, the data pertains to uni ed Germany

or the later years. We have 1292 observations. Our sample isunbalanced panel data. As the sample database is a panel, we usea xed e ects model. This will take into account the individualspeci c xed e ects.

4.1 th Mod

The model, in two parts, explains the intensity o domestic andoreign patenting respectively.



Special article


4.1.1 Dom s p n ng

The development indicators, which we have used as variables orexplaining the intensity o domestic patenting activity, are: GDP per capita and oreign trade intensity. The rationale and thehypothesis regarding the two variables chosen or explainingdomestic patenting activity is given below:

GDP Per Capita: We use GDPper capita as a proxy or the level o development. Our hypothesis is that there is a positive relation-ship between the level o development and domestic patentingintensity. The higher the level o development, the higher will bethe patent output. With a higher level o development, a country’scapacity to invest in R&Dincreases and will have a positive impacton patent output.

Foreign Trade Intensity: Foreign trade intensity is exports plusimports as a percentage o GDP. We have taken oreign tradeintensity as a proxy or the openness o the economy. We hypoth-esise that the higher oreign trade intensity, the higher the domes-tic patent output. High trade intensity means that the economy isbetter integrated within the global economy and this could resultin a more e cient allocation o resources, including thosedevoted towards R&De orts.

We estimate the ollowing equationDPit = α + β1GDPPCit + β2EXIMit + uWhere DP is domestic patent applications or 1,000 population,

GDPPC is GDP per capita and EXIM is exports and imports as per-centage o GDP. The i and t subscripts re er to individual countriesand time periods respectively.

4.1.2 Fo gn p n ngThe decision to take a patent in oreign countries, it may beargued, is based on at least two broad sets o considerations. Firstand the oremost, a patentee may look or protecting her inven-tion in those countries, which have the technological capability to imitate the invention. In other words, oreign patentinginvolves what may be called a de ensive reaction. That thisconsideration plays an important role is corroborated by theavailable data. In 1995, or instance, OECD members received anaverage o 46,000 patent applications rom non-residents, withone-hal o the membership receiving more than 50,000 applica-tions. In sharp contrast, only 14 o the 48 less developed countries(LDCs) reported that they had received patent applications romnon-residents. As regards some o the relatively advanced amongthe developing countries, India and South A rica received around5,000 applications but in case o China and Brazil the gureexceeded 20,000.

The decision as to where it will be cost-e ective to seek patent protection is yet another actor that plays a part ininfuencing oreign patenting. Since patent ees are high insome countries, companies consider it necessary to make acare ul trade-o between the value o the patent and cost o patenting.

In the present exercise, the variables through which we willtry to explain oreign patenting intensity are: GDP per capita,oreign trade intensity and net oreign direct investment ( FDI)

intensity. The rationale and the hypothesis regarding these three variables chosen or explaining oreign patenting activity isgiven below:

GDP Per Capita : We use GDP per capita as a proxy to measurethe level o development. We hypothesise that there is a positiverelationship between the level o development and oreign

patenting intensity. The higher the level o development thehigher will be the oreign patent intensity. As was mentionedabove, oreign patentees, while deciding about the countries in

which to take patents, are more likely to choose those countriesthat are more relatively more developed than those that areless developed.

Foreign Trade Intensity: We have taken the combined exportand import intensity as a proxy to measure the openness o aneconomy. We hypothesise that the higher is the oreign tradeintensity, the higher is the oreign patent activity. Since tradeintensity is an indicator o the extent to which an economy hasintegrated into the global economy, higher trade opennessmeans that the economy is more ully integrated, making it animportant destination or oreign patents.

FDI Intensity: We hypothesise a positive relationship betweenFDI and oreign patenting. This is based on the premise that a

rm is likely to take patents in a country in which it has madeinvestments. Here it is the FDI, which determines oreign patent-ing activity.

We estimate the ollowing equationFPit = α + β1GDPPCit + β2EXIMit + β3FDIit + u,

where FP is oreign patent applications per 1,000 population,GDPPC is GDP per capita, EXIM is exports and imports as a per-centage o GDP and FDI is the net FDI as a percentage o GDP. Sub-scripts i and t re er to individual countries and time periodsrespectively.

Two sets o estimates are presented below. Besides the esti-mates or the ull sample we will estimate the equations sepa-rately or developed and developing countries. We expect thesetwo groups o countries to behave di erently as regards theirdomestic as well as oreign patenting behaviour and hence, thesecond set o estimates.

Unbound Back Volum s of Economic and Political Weekly from 1976 to 2007 are available.

Write to:Circulation Department,

economic and poli ical W kly320-321, A to Z Industrial Estate, Ganpatrao Kadam Marg,

Lower Parel, Mumbai 400 013.

[email protected]



Special article


4.2 r su s

We now interpret the results o the model.

4.2.1 Dom s p n s

Table 1 gives the xed e ects estimate o the domestic patentequation. The results show that or the ull sample 85 per cent o

variation in domestic patent applications is explained by varia-

tion in GDPper capita and oreign trade intensity variables. Whileboth the explanatory variables are signi cant, GDP per capita ispositive and oreign trade intensity is negative. Thus, GDP percapita taken as a measure o development has a signi cant and

positive impact on domestic patent applications. This result is

along expected lines – increase in GDP per capita raises thecapacity o domestic entities to undertake R&Dand hence, to seek patent protection.

The negative sign o oreign trade intensity is interesting. Theimplication o this result is that the economies that are relatively more integrated with the global economy tend to produce asmaller number o domestic patent applications than closedeconomies. It can, however, be argued that this result is infu-enced by the ollowing twin tendencies by countries appearing inour sample: (i) some o the industrialised countries, includingthe US and Japan, which attract a large number o oreign patentsdisplay a lower trade to GDP ratio, and (ii) countries whose globalintegration have been at much higher levels, or instance those insouth-east Asia or Latin America, have much lower levels o domestic patents.

The equations estimated separately or developed and devel-oping countries, while displaying considerable similarity withthat o the ull sample, have some interesting di erences as well.For developed countries, it was ound that in the domestic patentapplications equation, the variation in the dependent variableexplained by the independent variables is 92 per cent but or thedeveloping countries the corresponding gure is only 57 per cent.The GDP per capita is positive and oreign trade intensity is nega-

tive or both sets o countries. It is interesting to note that thecoe cient o GDPper capita or developed countries is smaller thanthat or the developing countries. This result could be interpreted

to mean that while an increase in GDP per capita would result inan increase in domestic patent applications, it does so less indeveloping countries as compared to developed countries. It may be pointed out that the above-mentioned conclusion is consistent

with the reality. While countries with higher GDP per capita arein a position to allocate more resources in their R&D e orts,

which results in more domestic patent applications, countries

with low per capita income can be expected to have low output o domestic patent applications because o their inability to makesigni cant investments in R&Dactivities.

The negative relationship between domestic patent applica-tions and the openness index as measured by oreign trade inten-sity is a more interesting result. It implies that countries, whichare more open tend to produce less domestic patent applications.One reason or this could be that countries, especially those inthe developing world, which were ound to be relatively moreopen, tend to depend more on oreign technology and hence, donot allocate su cient resources or R&D e ort. A comparison o coe cients o developed and developing country equationsshows that a one per cent increase in oreign trade intensity willdecrease domestic patent intensity more in developing countriesthan in developed countries.

4.2.2 Fo gn p n s

Table 2 gives the xed e ects estimate o the oreign patent equa-tion. The results show that or the ull sample, 57 per cent o vari-ation in oreign patent applications is explained by variation inthe GDP per capita, oreign trade intensity and FDI intensity vari-ables. All the three independent variables are positive and signi -cant. Foreign patentees thus show the ollowing behaviour while

seeking patent protection: (i) they pre er countries with higherGDP per capita, which implies that they nd countries that arerelatively advanced countries more attractive; (ii) they pre ercountries that are relatively more integrated with the globaleconomy; and (iii) they seek patent protection in countries wherethe levels o FDI are substantial. The last two tendencies are sig-ni cant in that they corroborate the o t-repeated argument thatinfow o oreign technologies would be more pronounced incountries that are relatively more open. An additional dimensionthat the results point to is that countries in which rms havealready made investments are more likely to be the ones in whichpatents are taken. At the same time, however, the results indicatethat countries at lower levels o development are not pre erred by

oreign patentees, a tendency that could have implications orthese countries in terms o their access to technologies. This con-clusion is urther strengthened by the estimates that we haveobtained using separate equations or developing and developedcountries, as indicated below.

The equations estimating oreign patent applications in devel-oped and developing countries have interesting di erences.While or developed countries the three independent variablesexplain 57 per cent o variation in oreign patent applications,

or developing countries they explain only 42 per cent o

the variation in oreign patent applications. For developedcountries, all the three independent variables are positiveand signi cant, while or developing countries only the GDP

tabl 1: Fix d eff c s es ima of Dom s ic pa n equa ionVariable Full Sample Developed Countries Developing Countries

GDPpc 0.00001486 0.00001011 0.00007559(14.692) (14.231) (12.871)

EXIM/GDP -0.00043123 -0.00076608 -0.00109741(-2.145) (-2.563) (-4.921)

Adjusted R 2 0.85 0.92 0.57

Number of observations 1292 480 812Figures in the parenthesis are t-values. The dependent variable is DP

it/Population

it.

tabl 2: Fix d eff c s es ima of For ign pa n equa ionVariable Full Sample Developed Countries Developing Countries

GDPpc 0.00012054 0.00005546 0.00015177(13.914) (4.199) (12.552)

EXIM/GDP 0.09294102 0.41423747 -0.00429536(7.410) (11.666) (-0.765)

Net FDI/GDP 0.00352963 0.02033801 -0.00059613(2.020) (3.840) (-0.765)

Adjusted R 2 0.57 0.57 0.42

Number of observations 1292 480 812Figures in the parenthesis are t-values. The dependent variable is FP it/Population it.



Special article


per capita variable is positive and signi cant. For developingcountries, the oreign trade intensity and the FDI intensity

variables are not signi cant. This is an interesting result. It meansthat openness o the economy as measured by their oreign tradeintensity is not related to oreign patenting. Foreign patentees donot show a pre erence or those developing countries, which aremore open. In the same manner, FDI and oreign patenting are

not related as ar as developing countries are concerned. Thismeans, in other words, that developing countries, which are thedestination o oreign investment, do not seem to be destinations

or oreign patenting. One reason or this could be that the FDI isnot patent related but the act that these three independent vari-ables are positive and signi cant or developed countries meansthat oreign patentees react di erently to developed and devel-oping countries while making their patenting decisions.

5 con ud ng r m ks

This paper makes an attempt to explain the observed patterns inpatenting during the period 1975-98, using a set o deve lopment

indicators in respect o a selected set o countries. We try tond the relationship between domestic and oreign patenting

activity and the selected variables o the sample countries. Forexplaining domestic patenting activities we have included two

variables viz, GDP per capita and exports plus imports as per-centage o GDP (as a measure o openness) were used or thisexercise. Foreign patenting activity was sought to be explained

using three variables, viz, GDP per capita, exports plus importsas percentage o GDP (as a measure o openness) and oreigndirect investment as a percentage o GDP as explanatory

variables. We ound that while domestic patenting and GDP per capita are positively related, openness and domesticpatenting are negatively related. On the other hand, whi le GDP per capita is positively related to patenting, both openness andFDI while positive and signi cant or developed countries isnot signi cant in the case o developing countries. The presentstudy represents the rst step towards a better understandingo patenting behaviour o countries spread across the develop-ment spectrum.

Notes

1 This view was cogently refected in the ollowingstatement made by the director general o theWIPO: “The international patent system mustoperate to the maximum bene t o the countriesthat participate in it, taking account o their

widely varying stages o technological andeconomic development” [WTO 2001].

2 The Federal Trade Commission, in its recentreport, has highl ighted the range o problems thatUnited States Patent and Trademark O ce(USPTO) aces in carrying out its activities, theconsequences o which have been the grant o alarge number o questionable patents. See FederalTrade Commission (2003).

3 The United States Patent and Trademark O cereceives 300,000 patent applications annually,

which are examined by only 3,000 examiners.4 Watanabe (1985) says “Inter-temporal and inter-

national variations, or example, in the productgroups covered by the patent system, orbid use o readily available patent statistics or a very pre-cise comparative analysis. Still, one may be ableto discuss the relative level o inventive activity among di erent nations, where observed gapsare large enough.”

5 The rest o this sub-section is based on WIPO(1988). We re er to the p re-Trade Related Aspectso Intellectual Property R ights (TRIPs) situation(pre-1995) when such di erences were possible.

6 Throughout this paper we consider high-incomeeconomies identi ed as such by World Bank (1993) to be developed countries. High-incomeeconomies have GNP per capita o $ 7,620 or morein 1990 [World Bank 1993].

7 See Griliches (1989) or a discuss ion on how theresources available to the patent o ce determinethe grants. Some time these grants do not ollowthe trends in applications.

8 We use resident and domestic; and non-residentand oreign as synonyms.

9 The change in coverage o the Industrial PropertyStatistics in 1985 creates a discontinuity in theseries. Since 1985 patent applications underPatent Co-operation Treaty (PCT) and EuropeanPatent Convention (EPC) were being reportedseparately.

10 We have excluded small countries (21), leastdeveloped countries (20), Organisation A ricainede la Propriete Intellectual le (15 member countries

o which two have reported separately or some years), re-registration countries (2); ormersocialist countries and those that have emergeda ter their break-up (34), countries which havenot reported or more than 11 years (11), countries

with zero resident patent applications or morethan 11 years (3) and countries with zero patentgrants or more than 11 years (2). Iraq wasexcluded because World Development Indicators did not report data or most o the yearscovered by our study, making or a total o 96countries.

11 For the period 1975-91 Germany re ers to West

Germany and or the period 1992-98 it re ers touni ed Germany.12 We substitute the estimated data or missing

observations. Hence. we mix original data withestimated data.

References

Boswor th, D L (1980): ‘The Trans er o US Technology Abroad’, Research Policy , Vol 9, pp 378-88.

– (1984): ‘Foreign Patenting Flows to and rom theUnited Kingdom’, Research Policy, Vol 13,pp 115-24.

Eaton, J, and S Kor tum (1996): ‘Trade in Ideas: Patent-ing and Productivity in the OECD’, Journal of

International Economics , Vol 40, pp 251-78.

– (1999): ‘International Technology Di usion:Theory and Measurement’, International Economic

Review, Vol 40, pp 537-70.Engel, R L (1985): ‘Patent En orcement: The Uncer-

tainties o Patent Litigation’ in G S Tolley, J HHodge and J F Oehmke (eds), The Economics of

R&D Policy, New York, Praeger.Federal Trade Commission (2003): To Promote Inno-

vation: The Proper Balance of Competition and Patent Law and Policy , Federal Trade Commission,Washington DC.

Griliches, Z (1989): ‘Patents: Recent Trends and Puzzles’, Brookings Papers on Economic Activity: Micro Economics, pp 291-319.

– (1990): ‘Patent Statistics as Economic Indicators: A Survey’, Journal of Economic Literature , Vol 28,pp 1661-1707.

Mans eld, E (1986): ‘Patents and Innovation: AnEmpirical Study’, Management Science, Vol 32,pp 173-81.

Pakes, A (1986): ‘Patents as Options: Some Estimateso the Value o Holding European Patent Stocks’,

Econometrica , Vol 54, pp 755-784.Pretnar, S (1953): ‘The International Protection o

Industrial Property and the Di erent Stages o Economic Development o the States’, Industrial

Property , Vol 69, pp 213-23 (translat ion suppliedby WIPO o French original).

Schankerman, M, and A Pakes (1986): ‘Estimates o the Value o Patent Rights in European CountriesDuring the Post-1950 Period’, Economic Journal ,

Vol 96, pp 1052-076.Scherer, F M (1977): ‘The Economic E ec ts o Compul-

sory Patent Licensing’, Monograph Series in Finance and Economics, No 1977-2, New York University, New York.

Schi el, D, and C Kitti (1978): ‘Rates o Invention:International Patent Comparisons’, Research

Policy, Vol 7, pp 324-40.Soete, L L G (1981): ‘A General Test o Technological

Gap Trade Theory’, Weltwirtschaftliches Archiv , Vol 117, pp 639-60 .

Taylor, C T, and Z A Silberston (1973): The Economic Impact of the Patent System: A Study of the British Experience, Cambridge University Press,Cambridge.

United Nations Con erence on Trade and Develop-ment (UNCTAD) (1975): The Role of the PatentSystem in the Transfer of Technology to DevelopingCountries , New York, UN (TD/B/AC.11/19).

Vayrynen, R (1977): ‘The International Patent Systemand the Trans er o Technology to A rica’, Occa-sional Paper No 9, Tampere Peace Research Insti-tute, Tampere.

Watanabe S (1985): ‘The Patent System and Indige-nous Technology Development in the Third World’in J James and S Watanabe (eds), Technology,

Institutions and Government Policies , Macmillan,London.

World Bank (1993): World Development Report , Ox ordUniversity Press, Ox ord.

World Intellectual Property Organisation (WIPO)(1988): Existence, Scope and Form of Generally

Internationally Accepted and Applied Standards/ Norms for the Protection of Intellectual Property, Multilateral Trade Negotiations: The Uruguay Round , GATT, Geneva, (MTN/GNG/NG11/W/24).

WTO (2001): WIPO and WTO Launch New Initiativeto Help World’s Poorest Countries, World TradeOrganisation, Geneva.

Economic Development and Patenting Behaviour

Documents

Transcript of Economic Development and Patenting Behaviour