The Influence of Intellectual Property Rights on the International Trade of Advanced Technology Products

Abstract

The gravity model of international trade is based on the assumption that trade between two countries will tend to be greater as barriers between those two economies become smaller. In the traditional application of the gravity model, the physical distance between two economies, a proxy for transportation costs, represents this barrier in a very physical sense. This paper utilizes the gravity model to evaluate trade flows among a specific subset of traded goods, that of advanced technology products. The overall production costs of ATP goods include expenditures from a substantial amount of research and development, which means that transportation costs tend to represent a smaller portion of the overall production costs. Therefore, in the context of the gravity model, for ATP, the “barrier” effect of transportation costs is hypothesized to be weaker than for overall trade flows. Additionally, due to large investments in research and development of advanced technology products, low levels of intellectual property protection may serve to discourage firms from trading with countries that have comparatively loose enforcement of intellectual property protection regulations. This paper compares the application of the gravity model to exports of ATP and overall exports from the United States. The gravity model is applied to both overall US exports and US exports of ATP for the years 2007 to 2011. The gravity model is further applied to 2011 US exports of 10 ATP subcategories. Through these two approaches, this paper assesses the varying influence of transportation costs and intellectual property protections on the trade on of advanced technology products. Results indicate that higher levels of intellectual property protections in an economy are associated with greater imports of ATP from the United States, and that responsiveness to fluctuations in levels of IPR enforcement is not uniform among all categories of ATP.