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International technology Diffusion: A Gravity Approach

This paper investigates, empirically, the determinants of international technology diffusion. To do that, I set up a multi-country model of innovation and diffusion with perfect enforcement of intellectual property rights (IPR). The model yields a gravity equation for bilateral royalty payments that is estimated using methods from empirical trade. I investigate discrepancies between model’s predictions and observed royalty payments to identify the role of fundamentals vs. other factors such as imperfect IPR protection. Fundamentals account for most of the variation in royalty payments, whereas imperfect IPR protection and other factors are important in accounting for discrepancies between model and data.

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https://doi.org/10.20955/wp.2019.031