I develop a quantitative theory of bilateral trade agreements with intellectual property (IP) provisions in a multi-country growth model. The model’s dynamics are driven by innovation and technology licensing. Imperfect IP enforcement leads to reduced royalty payments and growth. Governments negotiate tariffs and IP enforcement through Nash bargaining. Gains from the trade agreement vary along the transition. Developing countries experience short-term losses, while developed countries gain in both the short and long run. A government with short-term goals may reduce losses but at the cost of lower growth and welfare. Tariffs could discourage developing countries from deviating from the agreement.
https://doi.org/10.20955/wp.2021.010
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