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Dynamic Gains from Trade Agreements with Intellectual Property Provisions

I study the short- and long-term effects of trade agreements with strict intellectual property (IP) provisions on innovation, growth and welfare. I develop a quantitative multi-country trade model with endogenous productivity through innovation and adoption that features imperfect IP rights enforcement. A counterfactual analysis shows that improving IP protection in exchange for market access increases welfare, innovation and growth in the world. However, welfare gains along the transition accrue differently across countries. While developed countries benefit both in the short- and in the long- run from these agreements, developing countries experience short-run losses; these losses are amplified if IP improvement is not accompanied by trade liberalization. In contrast to findings from standard trade models, liberalizing trade without improving IP rights decreases welfare and innovation in the long-run, making the distortion of imperfect IP protection worse.

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https://doi.org/10.20955/wp.2021.010