1. ¹Mason School of Business, The College of William & Mary, Williamsburg, VA, USA
2. ²Department of Economics, American University, Washington, DC, USA

Correspondence: WG Park, Department of Economics, American University, 4400 Massachusetts Avenue NW, Washington, DC 20016, USA. Tel: +1 202 885 3774; Fax: +1 202 885 3790; E-mail: wgp@american.edu

Received 15 September 2003; Revised 11 July 2006; Accepted 7 November 2006; Published online 26 July 2007.

Abstract

Global standards of patent protection have been strengthened and harmonized in recent years. Despite the heated policy debates and theoretical controversies, empirical studies of the consequences for innovative activity are scant. This paper contributes to the debate by providing an empirical analysis of the effects of patent strength on different aspects of innovative activity, namely firm-level research and development (R&D), domestic patenting, and foreign patenting. The analysis employs an updated index of patent rights. The results show the complexity of evaluating the effects of patent reform on innovative activity, since the effects vary nonlinearly (depending on the initial level of patent strength) and vary by a country's level of economic development. Overall, for developing economies, patent strength negatively affects domestic patent filings and insignificantly affects R&D and foreign patent filings. For developed economies, patent strength positively affects R&D and domestic patent filings, and negatively affects foreign patent filings, after some critical level of patent protection is reached.