Special articleeconomic Development and patenting Behaviour Biswajit Dhar, C Niranjan Rao The capacity of countries to take advantage of the patent system bears a relationship with their stage of development. This paper explores the relationship between economic development and domestic and foreign patenting behaviour. The study uses a unique data set covering 55 countries and 24 years. It determines the association of domestic patenting with gross domestic product per capita and openness to trade, and the association of foreign patenting with these variables and with foreign direct investment as a proportion of gdp. he use of patents data as an indicator of inventive activity has long evoked considerable interest among students of technology over several decades. Although several ques tions have been raised about the veracity of using patent data to measure technological progress across countries, this indicator has remained “as a mirage of wonderful plentitude and objectiv ity” in a desert of data for answering questions about the “rate of technical and scientific progress” over “time and across indus tries and national boundaries” [Griliches 1990]. The questions that the patent data help us answer are of considerable impor tance in a world where technology has become the prime motive force for economic development. But while the levels of patenting activity across countries are of considerable significance for explaining the relative levels of technological advancement, what is equally important is to understand the determinants of the observed levels of patenting. This is an issue that requires to be investigated at some depth for two reasons. The first and the more obvious of the reasons is that countries have historically displayed considerable differences in their levels of patenting, which need some cogent explanations. The second reason, one that has its genesis in the ongoing dis cussion on the evolving regime of intellectual property protec tion, is that the levels of patent protection that the countries should provide, need to be in keeping with their development needs. What this argument alludes to, in other words, is that the capacity of the countries to take advantage of the patent regimes bears a relationship with their stage of development.1 These are some of the issues that the present paper would try to address by relating patenting activity in 55 countries over a 24year period to a comparable set of development indicators. The paper is organised as follows. Section 1 reviews the litera ture on determinants of domestic and foreign patenting activities. Section 2 deals with the limitations of patent data as a measure of inventive activity, intercountry comparability of patent data and using patent applications data. Section 3 provides a description of the database used in the study. In section 4 we discuss the models used and report the results of regressions. Section 5 concludes. T The work on this article was done at the Research and Information System for the Nonaligned and Other Developing Countries, New Delhi. We are thankful to the World Intellectual Property Organisation, Geneva, for funding the research project from which this paper was generated. Biswajit Dhar ([email protected]) is with the Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi. C Niranjan Rao ([email protected]) is with the Centre for Economic and Social Studies, Hyderabad. Economic & Political Weekly EPW 1 literature review In this section we will present a brief review of relevant literature by referring to studies that explain either domestic or foreign patenting behaviour or both in an intercountry comparative framework. 1.1 Domestic patenting Behaviour Vayrynen (1977) estimates Spearman’s rankorder correlation coefficients for 10 African countries between patents granted (both domestic and foreign) per capita and GDP and GDP per june 7, 2008 39 The exports variable is positive and significant for all countries except for the Netherlands. 16 of which are industrialised) and log of GNP per capita (for 60 countries. The results obtained show that domestic patenting is related in a positive and significant manner for Switzerland. the independent variables are exports to Japan from the concerned country and domestic patents in the con cerned country. it is not significant. In the same paper. the independent variable is the R&D expenditure of the business enterprise sector for the year 1975. The explanatory variable taken for this exercise was research and development (R&D) expenditures. The exports variable is positive and significant for Canada. The loglinear regression shows that the size of multinational operations from that country and domestic patenting activity of the concerned country are positive and significant. Schiffel and Kitti (1978) try to explain the behaviour of domes tic patent applications in a set of five countries. imports of one country from the concerned country relative to one’s GNP. For all other countries. The correlation coefficients obtained for both sets of relationships. size of multinational operations from that country (the number of subsidiaries from the originating country being used as the proxy) and domestic patenting in the originating country. Schiffel and Kitti also try to explain foreign patenting in Japan by applicants from Canada. 1. For all other countries. averaged for the years 197678 and the independent variable is R&D spending per capita in the business enterprise sector for the year 1975. The paper by Bosworth (1980) explains foreign patenting by the US in 50 countries in the year 1974. The explanatory variables are human capital (average years of school ing). The explanatory variables taken are GDP and GDP per capita in the receiving coun try and exports of the US and foreign investment (the number of foreign firms being used as a proxy) from the US to the concerned country. lagged by two years. the UK and US. Sweden. The dependent variable taken for this exercise is the log of domes tic patent applications per capita. while import intensity is not significant. West Germany. It is interesting to note that domestic R&D expenditure is being used to explain foreign patents being taken in that par ticular country. Eaton and Kortum (1996) try to explain the flow of patent applications among 19 OECD countries for the year 1988. 2008 EPW Economic & Political Weekly 40 . GDP per capita has been taken to represent the level of development. viz. The loglinear regression shows that all the independent variables are positive and significant. France. He uses a cross section of data for 50 countries for the year 1974. The results showed that while for Canada and Japan. Bosworth (1984) tries to explain the patenting activity of the UK abroad.85 respectively. In the case of Japan. viz. the independent variables are exports to the US originating in the concerned country and domestic patents granted in the concerned country. the ratio of R&D scientists and engineers to total labour force and relative productivity of one country in compari son with the concerned country. the Netherlands. For France and the US. These results. Japan. log of gross domestic manufacturing product per capita (for 53 countries.Special article capita. Watanabe (1985) estimates correlation coefficients between the log of resident patent applications per capita. it was negative and signifi cant. The explanatory variables are GDP. Japan and the United States (US). The explanatory variables are imports into the UK from the concerned country. Switzerland and the United Kingdom (UK). while imports from that country to the UK is not significant in explaining foreign patenting activity in the UK. This equation also contains four variables that can be used as an indicator of the strength of the patent system. except the Netherlands for which it is 196573. according to the authors.2 Foreign patenting Behaviour Schiffel and Kitti (1978) try to explain foreign patenting activity in the US taking place from Canada. GDP per capita. Bosworth also tries to explain foreign pat enting activity in the UK.90 and 0. This study shows that a positive and significant relationship exists between the variables. Japan. West Ger many. the R&D coefficient was positive and significant. While GDP has been taken as a measure of the market size. Sweden and Switzerland and not signifi cant for all the other countries. The data covered the period 196374 for all countries except Japan for which the data covered the period 196774. were obtained because of the difficulties in measuring R&D expenditures. Canada. for West Germany. As in the earlier case. West Germany. the R&D coefficient was not signifi cant. it is not significant. intensity of R&D scientists and engineers’ employment and relative productivities are positive and signifi cant. The author finds that R&D spending in the business enterprise sector is positive and significant in explaining domestic patents. He uses a cross section of data for 22 countries for the year 1974. Switzerland. Sweden. France. patents and GDP and patents and GDP per capita were quite significant 0. viz. exports from the UK to the concerned country and size of multina tional operations (the number of the UK subsidiaries in the con cerned country is used as a proxy). The loglinear results show that all the independent variables are positive and significant but only exports and foreign direct investment variables are significant at 1 per cent level of significance. while it is negative and significant for the Netherlands. both for 1971. The period covered for this exercise is identical to that considered for the earlier case. The authors find that while june 7. In this study. The loglinear results of regression between for eign patents per capita and business enterprise R&D per capita show positive and significant relationship for all the countries. France. Soete (1981) explains domestic patenting in 19 Organisation for Economic Cooperation and Development (OECD) countries. In the same paper. Soete (1981) tries to explain patenting behaviour of foreign applicants from 17 OECD countries in five of the major patent granting countries. the Netherlands. The loglinear equation explain ing the ratio of patent applications and total labour force shows that human capital. the UK and US. France. The period covered by this study is 196574 for all countries. While the dependent variable is the number of patents granted averaged for the years 197678. 21 of which are industrialised) for the year 1979. domestic patents as an explanatory variable are found to be positive and significant for Canada and Switzerland and negative and significant for West Germany and Sweden. West Germany. Australia.1 patents as indicators of inventive activity One could expect that all patentable inventions would be pat ented. But. There are considerable differences in quality among patents. Japan and the Netherlands fol lowed a “deferred examination system” where substantive exam ination takes place only if specific request has been made within a specified period. Some of the former colonies had or have a dependent patent system linked to the former colonial power. in fact. these differences in patent laws are often accentuated by the differences in practices of the patent offices in interpreting these laws and ultimately the enforcement of these provisions. duration. these laws could change over time. these interindustry and interfirm propensities could change over time. all the studies were conducted during 197785. in particular. Mansfield (1986) estimates that while in the pharmaceutical. either as novel in the world or only in the country concerned. which we would discuss in this sec tion. 2. But in reality no two patent laws are the same.2 The patentability criteria. compulsory licensing and definitions of residents. renewal information and citations. This point can be corroborated by the fact that a signifi cant proportion of patents whose grant is challenged is held to be invalid by courts. The main reason behind this requirement seems to be to avoid giving a longer lease of life to the economically unviable patents. Firm level differences in propensity to patent arise from the strategic perspectives of these firms towards R&D and patenting. In other words. nonobviousness and indus trial applicability are difficult concepts to define and implement precisely. We can therefore assume that a patent. That a country’s patent law would influence the patent output of that country has been accepted as a truism. one would have expected more studies. Finally. not all patentable inventions are patented. coverage. While a few patents represent significant advancements in tech nology. 2 limitations of patent Data Any exercise that tries to explain crosscountry patenting behaviour should necessarily look at the quality of data that are available. for example. depends much less on the patent system. successful of these attempts have been the patent renewal models. Hong Kong and Singapore. The interindustry dif ferences in propensity to patent arise from the fact that while some industries such as pharmaceuticals depend on patent pro tection as an appropriation mechanism. there are differences in the manner in which patent law defines novelty. while they spend heavily on R&D. nonobviousness (inventive step) and industrial applicability (usefulness). which explain determinants of domestic and foreign patenting. Among the sectors that 2. The studies reviewed above. which can be up to seven years from the date of application [UNCTAD 1975]. The generally accepted patentability criteria are novelty (new). Germany. which has been renewed so as to complete the entire term of protection. Schankerman and Pakes (1986) have shown that the distribution of private value of patents is highly skewed. Hence we cannot draw any overall conclusions. The differences in patent laws could arise because of various provisions.3 whereas a court is obliged to conduct a through examination of a patent before determining its validity [Engel 1985. One of the major con tributors to the vastly varying quality of patents is the differences in interpretation of patentability criteria by patent offices. Taylor and Silberston (1973) showed that the fine chemical industry in general and the pharmaceutical industry.4 There are vast differences in patent laws of different countries. the patent laws in these countries should be the same. which are supplementary criteria of patentability. and (3) use of patent applications data. Moreover. Hence. The aircraft industry. The most Economic & Political Weekly EPW june 7. may also vary across countries. it is only 60 per cent in the case of pri mary metals and automobile industries. One reason given is that patent offices do not have the resources to do a thorough examination of each and every patent. depend on the patent system. which cover mostly developed countries are disparate and not comparable. in our view has several problems. Our attempt in this paper is to address these limitations in the available literature. is more valuable than the one. patent strength and domestic patenting activity are not so related. viz. (2) international comparability of patent data.Special article countries providing strong patent protection attract more foreign patents. Different countries have excluded specific sectors from the ambit of patenting at different times. Using the patent renewal information and patent fee schedules. But the changes in patent laws are not very frequent. while a few patents are very valuable a large majority of patents have low value. their output in terms of patents is very small. Disclosure requirements. for example. These problems could be grouped under three broad headings relevant for our study: (1) patents as indicators of inven tive activity. oil and machinery industries more than 80 per cent of patentable inventions are patented. Ease of imitation is one of the reasons for this industry’s reliance on the patent system. most others do not appear to be so. Comparison of patent data across countries. others do not. There have been attempts to quantify differences in the qual ity of patents through the use of number of claims in a patent specification. Some countries have only a patent registration system where there are only requirements of form to be fulfilled and no substantive examination of patent application takes place. 2008 41 . Further. It is interesting to note that except one. This information has been used to model patent renewal by Pakes (1986) and Schankerman and Pakes (1986). if we have to compare patent data across countries.5 In addition.2 international comparability of patent Data Patent data may not be comparable among countries because of differences in patent laws. These models have tried to capture the requirement mandated in several national patent laws that a patent has to be renewed periodically for it to be effective through its complete term. Considering the importance of the issue and the intense controversy it generated. Federal Trade Commission 2003]. which was allowed to lapse. it could be argued that patent data across coun tries are not strictly comparable. The more important among these are patentability criteria. novelty. mixture of metals and alloys. while in case of other countries. phar maceutical process patents. Another source of differences in patent counts. fertilisers. The presence of compulsory licensing provisions may affect patent output. cosmetics. We assume that the technological capability of a country has more influence than the patent system in determining the patent output of that country. for instance Scherer (1977) in a survey of the US firms finds that antitrust decrees involving compulsory licences discourage firms’ propen sity to patent. Hence. All the other countries consider residence of the applicant rather than the nationality for making the distinction between foreign and domestic patentees.Special article have been excluded were: pharmaceutical product patents. This may be because of differences in the practices of the patent offices in interpreting the various provisions of the patent law. chemical products. needs of export market and public health. [Eaton and Kortum 1999] and hence. While many countries in the world have compulsory licensing provi sions in their patent law to check possible abuse of patent mono poly. which inherited colonial patent laws. it could also be different for different sectors within a country. other countries do not explicitly mention it. the US is the only country. While some countries explicitly include importation as a right of the patent holder. biological processes for producing animal or plant varieties. We can assume that a “strong” patent system would generate more patents than a “weak” one but two coun tries at different levels of technological capabilities having the same “strong” patent system would not have the same patent out put. 2008 EPW Economic & Political Weekly 42 . Many developed6 countries. Many a patent office in developing countries may not have the human or material resources.7 Furthermore. food processes. While many countries have only civil remedies in the case of infringement. Nonworking of the pat ent is the main ground on which compulsory licences can be granted in a large number of countries (ibid). Developing coun tries. 3 Database for Study The source of data on patenting activity of different countries is the World Intellectual Property Organisation’s annual compilation Industrial Property Statistics. agricul tural machines and anticontaminants. The courts play an important part in the enforcement of patent rights and their practices differ among countries. We have collected data on patent applications and grants for residents and nonresidents8 for the period 197598. We recognise that the ideal data set would have been grant data arranged according to date of application but such a data set is not available. While in the US “the concept of residence is determined by the place of residence of the first named inventor rather than that of the applicant”. patents contain multiple claims. reformed their patent systems in the late 1960s and early 1970s. Data on patent applications are therefore much more comparable across countries than the data on grants are. There are differences in the enforcement of patent rights across countries. is the number of claims allowed for each patent. which are required to implement a patent law satisfactorily.9 The choice of 1975 as the initial year for the study was driven by the consideration that patent laws were in the process june 7. which makes intercountry comparisons difficult. food products. in Japan “the concept of residence is determined by the nationality of the applicant rather than the country of residence of the applicant”. which had strong compulsory licensing provisions in the past. the most important of which being the fact that only some of the applications are granted pat ents. The first and the foremost reason for using data on patent applications is that while patent applicants decide the date of application. Generally. applica tions for patents submitted in a year belong to that particular year but grants for a particular year contain applications made in different years. Moreover. while developed countries had less stringent com pulsory licensing provisions. methods of treatment of human or animal body. an important compo nent of which was to have compulsory licensing provisions. the practices of patent offices determine the date of grant. There could be important differences in the way the compul sory licensing provisions are incorporated in a patent law. there are a number of compelling reasons justifying their use in an exercise of the kind undertaken here. which uses antitrust provisions to the same effect. many developing countries had strong compulsory licensing provisions. the date on which the term of the patent protection starts could vary across coun tries. The other grounds on which a compulsory licence can be given are public interest. diluted them in later years as they attained technological capability. there are differences in the definition of residents and nonresidents among countries. satisfaction of the reasonable requirement of the public. plant varie ties. our reliance on former data set. The patent term could not only vary among countries. microorganisms and substances obtained by microbiological processes. the scope of patent rights covers making. The other explicit exclu sions found in some countries are animal varieties. One reason for this could be the subjective element. Japanese patent counts seem to be exag gerated because of practice of granting a patent for each claim. Finally. There are significant differences among countries in incor porating importation as a right of the patent holder. As of the late 1980s. which normally surrounds these provisions. technological capability has a strong influence on the patent output of a country. Another reason could be the differences in capabilities of patent offices. Computer programmes and nuclear inventions have also been excluded by certain countries [WIPO 1988]. 2. The duration of patent protection is another important source of difference in the patent laws of countries. selling and using the patented product in the case of product patent and using and selling a product directly obtained by a patented pro cess. Although there are a few limita tions of using the applications data. the most important of which are the date of application and the date of grant. Similarly there may be differences in the quality of patents granted. The two most important factors affecting the patent output of a country could be the “strength” of the patent law and techno logical capability.3 Use of patent applications Data We propose to use data relating to patent applications rather than patents granted for our analysis. a few countries have criminal provisions. 2008 43 . if a country reports. Bolivia. The data set used for analysis in this study contains 55 coun tries. The feature of the exer cise that has been undertaken in this paper is that this is the first study.10 These countries are Argentina. Germany11. during the late 1960s and early 1970s and this process was completed by mid1970s. Guatemala. India. South Africa. Economic & Political Weekly EPW Panama. Following the above mentioned studies. Egypt. Thailand. Peru. South Korea. Greece. Out of the 55 countries in our sample. “Okada (1992) finds that Japanese patents granted to foreigners contain on average 4. The GDP per capita is in 1995 constant dollars. the UK.12 In cases where the breakup between resi dents and nonresidents are not available. Australia. 4. Peru. Costa Rica. it overtook Germany in 1980. Our sample is unbalanced panel data. Thai land enacted a patent law only in 1979 and Zimbabwe did not report during the period 197578. El Salvador. Morocco. While the macroeconomic data pertains to West Germany from 1975 to 1991. Uruguay. In other words.2 per cent) making a total of 174 (13. precautionary patents and petty patents. Norway. patents of introduction. Greece. Sweden. India. Some countries report only total applications without giving a break up of resident and nonresident applications. Aus tria. 51 countries have com plete data (for all the 24 years) and four countries have incom plete data (for less than 24 years).1 the Model The model. We have taken the patent figures only for West Germany. we have used the aver age proportions for the nearest available years. Ireland. Venezuela and Zimbabwe. Sri Lanka. Chile. the data pertains to unified Germany for the later years. Denmark. This makes our data set an unbalanced panel data. Data on patents as is reported by the Industrial Property Statistics include patents. Panama. With these modified patent counts. Besides the problems with the data set mentioned above. While the practice of patent offices in all the other countries is to grant one patent with multiple claims. there is yet another relating to Japanese patent data. Egypt. One of the most contentious issues in the discussions on the international patent system that been addressed over several decades and has yet remained unresolved is whether countries at different stages of development can take advantage of the patent system by generating patentable inventions [Pretnar 1953]. Jamaica. Pakistan. Japan was placed third during 197579 and second during 198098 in the overall domestic patent ranking. Guatemala. The source of the data for the macroeconomic variables is the World Bank’s annual publication World Development Indicators. Venezuela and Zimbabwe. june 7. Out of the 55 countries in our sample. Tunisia. Uruguay. we use a fixed effects model. the Netherlands. This will take into account the individual specific fixed effects. which is a manifesta tion of their overall development. Thailand (197578) and Zimbabwe (197578).Special article of being changed in many countries. The patent data in Industrial Property Statistics is based on vol untary reporting by countries. Japan. Hence. Mauritius. South Korea. Morocco. the Philippines. out of which. France. explains the intensity of domestic and foreign patenting respectively. the Philippines. Turkey. the nonreporting obser vations were 158 (12. The four countries with incom plete data along with the period for which data are unavailable are: China (197584). Colombia. Canada. Iran. which tries to explain the patenting behaviour of a large cross section of countries through macroeconomic variables. Malaysia (197584). Bolivia. The developing countries argued at various international fora that their stage of technological development. Ecuador. Honduras. 30 countries have not reported for at least one year and one country did not give a breakup between residents and nonresidents for at least one year. Finland. The extent to which countries provide patent data may be taken as an indicator of how important they felt the patent system to be. we have also made the necessary adjustments to make Japanese patent data comparable to that of the other countries. Five countries did not report and did not give a breakup between residents and nonresidents at least for one year. Tunisia. inventors’ certificates. Pakistan. New Zealand.4 per cent).9 times as many inventive claims as those granted to Japanese inventors” [referred to in Eaton and Kortum 1996]. While China adopted a patent system only in 1984. Sri Lanka. Italy. Chile. Brazil. data are included otherwise it is omitted. the US. German unifica tion in 1991 creates a break in its time series data on macro economic variables. Japan. patents of importa tion. Switzerland. The count of pat ent applications in Japan is not comparable with patent counts in other countries for the following reason. Mexico. Ireland. in two parts. China. requires a “lesser” level of pat ent protection than that provided for in the developed countries. Brazil. El Salvador. Turkey. Ecuador. South Africa. Mexico. Malaysia had a reregistration system until 1983. Costa Rica. Iraq. Trinidad and Tobago. 20 are developed countries and 35 are devel oping countries. Honduras. Israel. Japan has followed the unique practice of grant ing patents covering each of the claims. As the sample database is a panel. revalidation patents. Portugal. It is this argument that is the focus of our analysis here. China. Belgium. Out of a total 1. We have fitted a trend equation for available data and then estimated for the missing years. along with the break up between residents and nonresidents during the entire period under study.292 observations in our database. The countries for which we had to estimate the missing data are: Argentina. 4 Development and patenting activity In this section. We have 1292 observations. Trinidad and Tobago. Italy. Jamaica. Thailand. There is no mechanism to address the problem of nonreporting by countries. Malaysia. Colombia. Only 20 coun tries have provided data for each year. Spain. we will analyse the relationship between selected macroeconomic variables and patents. These countries have also pointed to the fact that developed countries in their earlier stages of technological development adopted relatively “weak” patent regimes and it was only after they achieved a certain level of technological capability that they opted for a “strong” patent system. Thus.2 per cent) and nobreakup between residents and nonresidents were 16 (1. the patent counts from Japan are inflated. Malaysia. Iran. As regards some of the relatively advanced among the developing countries. the second set of estimates.1.000. 4. In other words. companies consider it necessary to make a careful tradeoff between the value of the patent and cost of patenting. Two sets of estimates are presented below. We expect these two groups of countries to behave differently as regards their domestic as well as foreign patenting behaviour and hence. Circulation@epw. Sub scripts i and t refer to individual countries and time periods respectively. OECD members received an average of 46. Besides the esti mates for the full sample we will estimate the equations sepa rately for developed and developing countries. We have taken foreign trade intensity as a proxy for the openness of the economy. In 1995. the variables through which we will try to explain foreign patenting intensity are: GDP per capita. EXIM is exports and imports as a per centage of GDP and FDI is the net FDI as a percentage of GDP. which determines foreign patent ing activity. Our hypothesis is that there is a positive relation ship between the level of development and domestic patenting intensity. Foreign Trade Intensity: Foreign trade intensity is exports plus imports as a percentage of GDP.in 44 june 7. High trade intensity means that the economy is better integrated within the global economy and this could result in a more efficient allocation of resources. This is based on the premise that a firm is likely to take patents in a country in which it has made investments. We hypoth esise that the higher foreign trade intensity. which have the technological capability to imitate the invention.000 patent applications from nonresidents. GDPPC is GDP per capita. including those devoted towards R&D efforts. The higher the level of development. FDI Intensity: We hypothesise a positive relationship between FDI and foreign patenting. A to Z Industrial Estate. With a higher level of development. Mumbai 400 013. higher trade openness means that the economy is more fully integrated. which we have used as variables for explaining the intensity of domestic patenting activity. The rationale and the hypothesis regarding these three variables chosen for explaining foreign patenting activity is given below: GDP Per Capita: We use GDP per capita as a proxy to measure the level of development. Foreign Trade Intensity: We have taken the combined export and import intensity as a proxy to measure the openness of an economy. The decision as to where it will be costeffective to seek patent protection is yet another factor that plays a part in influencing foreign patenting. In the present exercise. We hypothesise that the higher is the foreign trade intensity. We estimate the following equation DPit = α + β1GDPPCit + β2EXIMit + u Where DP is domestic patent applications for 1. making it an important destination for foreign patents.2 Foreign patenting The decision to take a patent in foreign countries. The i and t subscripts refer to individual countries and time periods respectively. Here it is the FDI. a country’s capacity to invest in R&D increases and will have a positive impact on patent output. Write to: Circulation Department. GDPPC is GDP per capita and EXIM is exports and imports as per centage of GDP.000 applications but in case of China and Brazil the figure exceeded 20. foreign patenting involves what may be called a defensive reaction. First and the foremost. As was mentioned above. is based on at least two broad sets of considerations. The rationale and the hypothesis regarding the two variables chosen for explaining domestic patenting activity is given below: GDP Per Capita: We use GDP per capita as a proxy for the level of development. That this consideration plays an important role is corroborated by the available data. a patentee may look for protecting her inven tion in those countries. 2008 EPW Economic & Political Weekly .Special article 4. it may be argued. Since trade intensity is an indicator of the extent to which an economy has integrated into the global economy. only 14 of the 48 less developed countries (LDCs) reported that they had received patent applications from nonresidents. for instance. foreign trade intensity and net foreign direct investment (FDI) Unbound Back Volumes of Economic and Political Weekly from 1976 to 2007 are available. We estimate the following equation FPit = α + β1GDPPCit + β2EXIMit + β3FDIit + u. Lower Parel. the higher is the foreign patent activity. are more likely to choose those countries that are more relatively more developed than those that are less developed. India and South Africa received around 5.000 population. The higher the level of development the higher will be the foreign patent intensity. In sharp contrast.000 population. are: GDP per capita and foreign trade intensity. foreign patentees. while deciding about the countries in which to take patents. Ganpatrao Kadam Marg.1. where FP is foreign patent applications per 1. the higher the domes tic patent output.1 Domestic patenting The development indicators. economic and political Weekly 320-321. the higher will be the patent output. We hypothesise that there is a positive relationship between the level of development and foreign patenting intensity. with onehalf of the membership receiving more than 50.000 applica tions. intensity. Since patent fees are high in some countries. 199) 0. which attract a large number of foreign patents display a lower trade to GDP ratio. a tendency that could have implications for these countries in terms of their access to technologies. however.92 480 0.666) 0.2 Foreign patents Table 2 gives the fixed effects estimate of the foreign patent equa tion.00005546 (4. The dependent variable is DPit/Populationit. and (ii) countries whose global integration have been at much higher levels.00076608 (-2. The equations estimated separately for developed and devel oping countries. for instance those in southeast Asia or Latin America.00012054 (13.00007559 (12. It may be pointed out that the abovementioned conclusion is consistent with the reality. The dependent variable is FPit/Populationit. For developed countries. the results indicate that countries at lower levels of development are not preferred by foreign patentees. It implies that countries. Foreign patentees thus show the following behaviour while seeking patent protection: (i) they prefer countries with higher GDP per capita. countries with low per capita income can be expected to have low output of domestic patent applications because of their inability to make significant investments in R&D activities. The negative relationship between domestic patent applica tions and the openness index as measured by foreign trade inten sity is a more interesting result. The negative sign of foreign trade intensity is interesting. however. especially those in the developing world. positive impact on domestic patent applications.692) -0.145) 0. GDP per capita is positive and foreign trade intensity is negative. all the three independent variables are positive and significant.765) -0.231) -0. be argued that this result is influ enced by the following twin tendencies by countries appearing in our sample: (i) some of the industrialised countries.020) 0.Special article 4.00352963 (2. One reason for this could be that countries. Thus. and (iii) they seek patent protection in countries where the levels of FDI are substantial.00001486 (14. have much lower levels of domestic patents. including the US and Japan.85 1292 0. 57 per cent of vari ation in foreign patent applications is explained by variation in the GDP per capita. while displaying considerable similarity with that of the full sample. tend to depend more on foreign technology and hence.00001011 (14. as indicated below.42 812 to mean that while an increase in GDP per capita would result in an increase in domestic patent applications.02033801 (3. This result could be interpreted Economic & Political Weekly EPW june 7.2.57 480 0.00015177 (12.914) 0. The GDP per capita is positive and foreign trade intensity is nega tive for both sets of countries. The results show that for the full sample.57 812 Figures in the parenthesis are t-values. 4.00059613 (-0. to seek patent protection.563) 0.41423747 (11. which implies that they find countries that are relatively advanced countries more attractive. do not allocate sufficient resources for R&D effort.765) 0. 4. which are more open tend to produce less domestic patent applications. While countries with higher GDP per capita are in a position to allocate more resources in their R&D efforts.1 Domestic patents Table 1 gives the fixed effects estimate of the domestic patent equation. while for developing countries only the GDP Figures in the parenthesis are t-values. This con clusion is further strengthened by the estimates that we have obtained using separate equations for developing and developed countries. While both the explanatory variables are significant. (ii) they prefer countries that are relatively more integrated with the global economy. This result is along expected lines – increase in GDP per capita raises the capacity of domestic entities to undertake R&D and hence.2 results We now interpret the results of the model. the variation in the dependent variable explained by the independent variables is 92 per cent but for the developing countries the corresponding figure is only 57 per cent. The last two tendencies are sig nificant in that they corroborate the oftrepeated argument that inflow of foreign technologies would be more pronounced in countries that are relatively more open. An additional dimension that the results point to is that countries in which firms have already made investments are more likely to be the ones in which patents are taken. A comparison of coefficients of developed and developing country equations shows that a one per cent increase in foreign trade intensity will decrease domestic patent intensity more in developing countries than in developed countries. foreign trade intensity and FDI intensity vari ables. which were found to be relatively more open.410) 0.57 1292 0.09294102 (7. it does so less in developing countries as compared to developed countries. The equations estimating foreign patent applications in devel oped and developing countries have interesting differences. 2008 45 .2. it was found that in the domestic patent applications equation. At the same time.921) 0. It can. The implication of this result is that the economies that are relatively more integrated with the global economy tend to produce a smaller number of domestic patent applications than closed economies.871) -0. table 2: Fixed effects estimate of Foreign patent equation Variable Full Sample Developed Countries Developing Countries GDPpc EXIM/GDP Net FDI/GDP Adjusted R2 Number of observations 0. While for developed countries the three independent variables explain 57 per cent of variation in foreign patent applications.552) -0. It is interesting to note that the coefficient of GDP per capita for developed countries is smaller than that for the developing countries. for developing countries they explain only 42 per cent of the variation in foreign patent applications. The results show that for the full sample 85 per cent of variation in domestic patent applications is explained by varia tion in GDP per capita and foreign trade intensity variables. GDP per capita taken as a measure of development has a significant and table 1: Fixed effects estimate of Domestic patent equation Variable Full Sample Developed Countries Developing Countries GDPpc EXIM/GDP Adjusted R2 Number of observations 0.00429536 (-0. which results in more domestic patent applications.00109741 (-4. For developed countries.00043123 (-2. have some interesting differences as well. All the three independent variables are positive and signifi cant.840) 0. Econometrica. Occa sional Paper No 9. J H Hodge and J F Oehmke (eds). using a set of development indicators in respect of a selected set of countries. 11 For the period 197591 Germany refers to West Germany and for the period 199298 it refers to unified Germany. forbid use of readily available patent statistics for a very pre cise comparative analysis. 9 The change in coverage of the Industrial Property Statistics in 1985 creates a discontinuity in the series. – (1999): ‘International Technology Diffusion: Theory and Measurement’. Cambridge. Griliches. Monograph Series in Finance and Economics. making for a total of 96 countries. 8 We use resident and domestic. – (1990): ‘Patent Statistics as Economic Indicators: A Survey’. Foreign patentees do not show a preference for those developing countries. R L (1985): ‘Patent Enforcement: The Uncer tainties of Patent Litigation’ in G S Tolley. Management Science. References Bosworth. Vol 7. Some time these grants do not follow the trends in applications. reregistration countries (2). World Intellectual Property Organisation (WIPO) (1988): Existence. Mansfield. J. Watanabe S (1985): ‘The Patent System and Indige nous Technology Development in the Third World’ in J James and S Watanabe (eds). least developed countries (20). Engel. Weltwirtschaftliches Archiv. we mix original data with estimated data. Foreign patenting activity was sought to be explained using three variables. Vol 13. countries with zero resident patent applications for more than 11 years (3) and countries with zero patent grants for more than 11 years (2). Cambridge University Press. Brookings Papers on Economic Activity: Micro Economics. No 19772. GDP per capita and exports plus imports as per centage of GDP (as a measure of openness) were used for this exercise. where observed gaps are large enough. and Z A Silberston (1973): The Economic Impact of the Patent System: A Study of the British Experience. M. C T. pp 37888. june 7. former socialist countries and those that have emerged after their breakup (34). D. See Federal Trade Commission (2003). 2008 EPW Economic & Political Weekly 46 . in other words. World Trade Organisation. Schankerman. openness and domestic patenting are negatively related. 5 concluding remarks This paper makes an attempt to explain the observed patterns in patenting during the period 197598. New York University.000 examiners. 2 The Federal Trade Commission. – (1984): ‘Foreign Patenting Flows to and from the United Kingdom’. Vol 9. London.000 patent applications annually. R (1977): ‘The International Patent System and the Transfer of Technology to Africa’. The present study represents the first step towards a better understanding of patenting behaviour of countries spread across the develop ment spectrum. 4 Watanabe (1985) says “Intertemporal and inter national variations. pp 11524. We try to find the relationship between domestic and foreign patenting activity and the selected variables of the sample countries. World Bank (1993): World Development Report. and nonresident and foreign as synonyms. D L (1980): ‘The Transfer of US Technology Abroad’. for example. Research Policy. Oxford. the foreign trade intensity and the FDI intensity variables are not significant. Research Policy. Vol 96. Economic Journal. This is an interesting result. S (1953): ‘The International Protection of Industrial Property and the Different Stages of Economic Development of the States’. while GDP per capita is positively related to patenting. Vol 40. and A Pakes (1986): ‘Estimates of the Value of Patent Rights in European Countries During the Post1950 Period’. Vol 40. pp 755784. and C Kitti (1978): ‘Rates of Invention: International Patent Comparisons’. pp 21323 (translation supplied by WIPO of French original). Tampere Peace Research Insti tute. Technology. Washington DC. and S Kortum (1996): ‘Trade in Ideas: Patent ing and Productivity in the OECD’. pp 291319. Geneva. Pretnar. New York. Vol 28. Journal of Economic Literature. Research Policy. UN (TD/B/AC. Z (1989): ‘Patents: Recent Trends and Puzzles’. do not seem to be destinations for foreign patenting. pp 32440. both openness and FDI while positive and significant for developed countries is not significant in the case of developing countries. countries which have not reported for more than 11 years (11). pp 1052076. Journal of International Economics. Scope and Form of Generally Internationally Accepted and Applied Standards/ Norms for the Protection of Intellectual Property. taking account of their widely varying stages of technological and economic development” [WTO 2001].Special article per capita variable is positive and significant. New York. 12 We substitute the estimated data for missing observations. On the other hand. that developing countries. Highincome economies have GNP per capita of $ 7. One reason for this could be that the FDI is not patent related but the fact that these three independent vari ables are positive and significant for developed countries means that foreign patentees react differently to developed and devel oping countries while making their patenting decisions. pp 53770. 10 We have excluded small countries (21). Pakes. which are the destination of foreign investment. in its recent report. one may be able to discuss the relative level of inventive activity among different nations. 3 The United States Patent and Trademark Office receives 300. Institutions and Government Policies. Vayrynen. Notes 1 This view was cogently reflected in the following statement made by the director general of the WIPO: “The international patent system must operate to the maximum benefit of the countries that participate in it. GDP per capita. Vol 117. Tampere. viz.620 or more in 1990 [World Bank 1993]. Vol 32. Scherer. Vol 69. pp 25178. The Economics of R&D Policy. This means. Taylor. Eaton. Vol 54. Federal Trade Commission. (MTN/GNG/NG11/W/24).” 5 The rest of this subsection is based on WIPO (1988). Macmillan. Since 1985 patent applications under Patent Cooperation Treaty (PCT) and European Patent Convention (EPC) were being reported separately. International Economic Review. Organisation Africaine de la Propriete Intellectualle (15 member countries of which two have reported separately for some years). Praeger. in the product groups covered by the patent system. the consequences of which have been the grant of a large number of questionable patents. United Nations Conference on Trade and Develop ment (UNCTAD) (1975): The Role of the Patent System in the Transfer of Technology to Developing Countries. FDI and foreign patenting are not related as far as developing countries are concerned. which are more open. pp 17381. A (1986): ‘Patents as Options: Some Estimates of the Value of Holding European Patent Stocks’. We refer to the preTrade Related Aspects of Intellectual Property Rights (TRIPs) situation (pre1995) when such differences were possible. Still. 6 Throughout this paper we consider highincome economies identified as such by World Bank (1993) to be developed countries. E (1986): ‘Patents and Innovation: An Empirical Study’. We found that while domestic patenting and GDP per capita are positively related. New York. which are examined by only 3. For explaining domestic patenting activities we have included two variables viz.11/19). Schiffel. Iraq was excluded because World Development Indicators did not report data for most of the years covered by our study. Industrial Property. It means that openness of the economy as measured by their foreign trade intensity is not related to foreign patenting. For developing countries. Federal Trade Commission (2003): To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy. Soete. Oxford University Press. Hence. pp 63960. exports plus imports as percentage of GDP (as a measure of openness) and foreign direct investment as a percentage of GDP as explanatory variables. Multilateral Trade Negotiations: The Uruguay Round. GATT. F M (1977): ‘The Economic Effects of Compul sory Patent Licensing’. pp 16611707. In the same manner. has highlighted the range of problems that United States Patent and Trademark Office (USPTO) faces in carrying out its activities. L L G (1981): ‘A General Test of Technological Gap Trade Theory’. Geneva. 7 See Griliches (1989) for a discussion on how the resources available to the patent office determine the grants. WTO (2001): WIPO and WTO Launch New Initiative to Help World’s Poorest Countries.
Report "Economic Development and Patenting Behaviour"