Effects of intellectual property rights on innovation and economic activity: A non-linear perspective from Latin America

Abstract

Intellectual property rights (IPRs) have a significant impact on facilitating the economic endeavors of countries. Nevertheless, there exists notable disparity among studies concerning the implications of IPRs within developing countries. Therefore, this study examines how stronger IPRs affect economic activity and moderate two important knowledge channels, domestic and foreign innovation activity. Using a sample of 18 Latin American countries from 2007 to 2018, we employed the Driscoll-Kraay robust standard errors, two-stage least squares (2SLS), and Generalized Method of Moments (GMM) to examine the effects of IPRs. Results confirm an inverted U-shaped relationship between IPRs and economic activity. Hence, the majority of Latin countries continue to vary in the factors of production that suport robust IPRs. Conversely, robust IPRs effectively improve the relation between domestic innovation and economic activity. Similarly, this influence holds true for foreign innovation as well. Based on this evidence, the research suggests implementing an optimal IPR policy.