Endogeneity of IPR Policy: North-South Trade with Southern Innovation

Abstract: This thesis developed a model of north-south trade with multinational firms and increasing product variety, in which the South could also create innovations motivated by imitations. In Northern R&D, researchers create innovations and Northern firms are attracted to invest directly in the south for relatively lower wage level. Foreign Affiliates of multinational firms adapt Northern innovations in Adaptive R&D. The imitations caused by various degrees of IPR protection in the south are served as the resources of knowledge and experience for Southern Innovations. Once the imitations could indirectly bring positive benefit to the south by Motivated Innovation, we find that, as the south becomes more innovative, they tend to accept stronger IPR protection policy which results in a faster rate of technology transfer from multinational firms and narrow the welfare gap between North and South. However, a pure increase in the Southern population would enlarge the distance between North and South though the welfare in both regions would increase.