Patent Enforcement and Quality Upgrading of Exported Products

This paper evaluates how patent protection affects the quality of exported products. Utilizing a sample comprising 43 advanced and emerging economies, we identify the effect of patent protection on product-quality by exploiting the variation in patent protection enforcement across countries and the variation in R&D-intensity across industries (as a measure of an industry's dependence on patent protection enforcement). We find that R&D-intensive industries exhibit a disproportionate increase in the production and export of higher-quality products in countries with more effective patent protection relative to those industries in countries with lower levels of patent protection. We also find that the disproportionate exported product quality increase in R&D-intensive industries due to patent protection enforcement is stronger for differentiated products and in developed countries or countries with higher technological capacity. Overall, our paper provides new insights into the real effects of patent protection on the economy, with the most obvious being that it underscores the interplay between country heterogeneity in patent protection and industry heterogeneity in R&D-intensity as an essential determinant of the geographical and industry variation in average product-quality. Nonetheless, it re-emphasizes the need for patent policies to take into account country-specific idiosyncrasies in their design.