Intellectual Property Rights, Imitative Ability and Export Performance: The Korean Experience

This paper investigates the impacts of IPR protection in foreign countries on Korea's export performance. The empirical analysis in this paper differs from those in previous studies in several respects. First, the impact of IPRs is firstly forced to be uniform across sectors and then is allowed to differ across sectors so that industry-specific evidence can be documented. Second, in order to analyze the impact of IPR protection on trade, we employ the random-effects model to incorporate differences between cross-sectional entities by allowing the intercept to change, but the amount of change is random. Third, the study is based on an analysis of the most recent panel data which allow the patent regime to change over time. Finally, this study provides new evidence regarding the linkage between IPRs and trade with a focus on Korea. Our major findings are summarized as follows. First, reinforced IPR protection in foreign countries has a positive effect on Korea's total exports, indicating the dominance of market expansion effects. Second, stronger protection of IPRs induces Korea's exports to all foreign countries regardless of their level of development. The effects are stronger in medium-income and high-income countries. Third, Korea tends to export more to countries with strong imitative ability when the IPR protection in those countries is strengthened. Finally, stronger protection of IPRs in foreign countries with weak imitative ability leads to an ambiguous reduction in Korea's exports. Efforts to increase the GDP, improve social infrastructure, accelerate domestic reforms (openness to trade), and strengthen IPR protection in foreign countries are suggested as a remedy for obstacles to Korea's exports. Importantly, strengthening of IPRs would have the greatest effect if foreign GDP also rose.