Abstract
The intention of this paper is to provide "for the first time" a conceptual framework on how a level of IPRs is linked to bilateral intra-industry trade (IIT) flows. The proposed analysis of the relationship between IPRs and IIT of this paper is couched in a simple and intuitive framework that answers a positive question of how intellectual property rights (IPRs-) induced market expansion, and market power effects are related to the horizontal and vertical intra-industry trade flows. The proposed intuitive framework introduces a demand-side approach and a supply-side approach in explaining the link between IPRs and intra-industry trade (IIT) flows. The supply-side approach explores how a country’s IPRs affect its own exports (supply). In contrast, the demand-side approach examines the effect a country’s IPRs have on its own imports (demand). The presented conceptual framework of this paper provides intuitive evidence that in determining bilateral intra-industry trade (IIT) flows in a two-country world, the demand approach posits that bilateral trade flows may increase or decrease due to improvements in IPRs in the importing destination country, while the supply-side approach states that the bilateral trade flows may also increase or decrease due to strong (high) IPRs in the exporting country. Furthermore, the simultaneous effects of both supply and demand on bilateral intra-industry trade flows are simultaneously needed in explaining the effects of strengthening the level of the IPRs on bilateral intra-industry trade flows (IIT).
Highlights
The issue of Intellectual Property Rights (IPRs) protection is of growing worldwide importance as economies move increasingly towards knowledge-based activities [1]
In view of the fact that the existing trade literature on IPRs and trade has unearthed the possible links between IPRs protection and IIT, this paper presents a conceptual framework on how IPRs might be linked to bilateral intra-industry trade
The nature of bilateral vertical intra-industry trade flows between two countries will be discussed in reference to the on-going automobile example representing vertical IIT (VIIT) in this context, in which it is assumed that Country A does not produce finished cars as it only exports car suspensions to Country B; these suspensions are used to produce finished cars in Country B
Summary
The issue of IPRs protection is of growing worldwide importance as economies move increasingly towards knowledge-based activities [1]. Little work has been done directly to investigate the relationship between IPRs protection and traditional trade flows (one-way trade). It is to be expected that, the relationship between IPRs protection and IIT flows will be quite different from that when one-way trade (or inter-industry trade) is conducted. The existence of bilateral intra-industry trade (IIT) implies that the trading countries have the same industry pattern This is a situation in which intellectual piracy, unauthorized use of technology, and other IPRs related issues become potentially important. This paper answers a positive question of how the level of intellectual property rights induced market expansion, and market power effects are related to the horizontal and vertical intra-industry trade flows.
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