Intellectual property rights protection and quality upgrading: Evidence from China

Abstract

This study analyzes the effect of domestic and foreign intellectual property rights (IPR) protection on quality upgrading. We build a tractable model of heterogeneous firms, endogenous innovation scale, and endogenous quality choice. The model shows that IPR protection affects firms’ export quality through two opposing channels: the innovation and threshold effects, which promote and inhibit quality upgrading, respectively. We examine the overall effect of these channels using firm-level data from China across 2000–2007. We find that: (ⅰ) both domestic and foreign IPR protection positively affect export quality upgrading, so innovation effect is dominant; (ⅱ) the impact of domestic IPR protection is greater than that of foreign IPR protection; and (iii) various methods, such as generalized method of moments and difference in differences, are used to test the conclusions of this study, indicating robust results.