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Export quality and patent protection: Stage‐dependent effects in development

This paper provides empirical evidence on the effects of patent protection on the vertical innovation of developing country exporters. We find that the relationship between export quality upgrading and patent protection is dependent on the technological stage of an economy. Specifically, the impact of patent protection depends on how close an economy’s product quality is to the world frontier. We demonstrate that, for product qualities that are above some threshold closeness to this frontier, patent protection is positively associated with vertical innovation; for qualities below this threshold, patent protection is negatively associated with vertical innovation. We then characterize the density of the distribution of country products, determining which combinations fall under the threshold or pass the threshold, and draw some implications for patent policy design. To establish these findings, we employ a very extensive index of export product quality at the 4-digit SITC level and utilize a country-level measure of effective patent protection for the period 1990 2010 at five-year intervals.