Protection of trade for innovation: The roles of Northern and Southern Tariffs

Abstract

Using a North-South trade model with innovation and imitation, we investigate the interaction of intellectual property rights (IPR) protection and trade protection. We show that unlike a Southern tariff, a Northern tariff supplements IPR protection and is not necessarily a beggar-thy-neighbor policy. The globally optimal Northern tariff increases as IPR protection in the North or the South decreases. Global welfare may rise as Northern tariff increases, but necessarily declines as Southern tariff increases. This suggests that pushing for freer trade in the South is more urgent than in the North in innovation-intensive sectors where IPR protections are weak in both regions. © 2003 Elsevier Science B.V. All rights reserved.