Do National Patent Laws Stimulate Domestic Innovation in a Global Patenting Environment? A Cross-Country Analysis of Pharmaceutical Patent Protection, 1978-2002

Abstract

This paper evaluates the effects of patent protection on pharmaceutical innovations for twenty-six countries that established pharmaceutical patent laws during 1978-2002. Controlling for country characteristics through matched sampling techniques to establish two proper comparison sets among ninety-two sampled countries and through country-pair fixed-effects regressions, this study yields robust results. National patent protection alone does not stimulate domestic innovation, as estimated by changes in citation-weighted U.S. patent awards, domestic R&D, and pharmaceutical industry exports. However, domestic innovation accelerates in countries with higher levels of economic development, educational attainment, and economic freedom. Additionally, there appears to be an optimal level of intellectual property rights regulation above which further enhancement reduces innovative activities.

Keywords: Innovation, Intellectual Property Rights, Pharmaceuticals, Mahalanobis Matching

JEL Classification: O34, C15, C81, O31, L65