The role of IPRs on prices, wages and growth in a two country directed technical change model

Abstract We develop a two country, Innovator and Follower, directed technical change model between tradable and nontradable sectors. The Innovator performs innovative R&D. The Follower imitates, in a pre-trade context, and adopts, in a trade scenario, the available technological knowledge. We start by considering the pre-trade context and then we analyze the trade scenario. In both regimes – imitation and adoption – and in BGP, international IPRs protection, R&D productivity, scale-effects intensity and substitutability between sectors determine the stable and unique worldwide economic growth rate and the technological-knowledge bias, which, in turn, affects relative prices and wages. Depending on IPRs protection, imitation and adoption can either amplify or slow down the technological-knowledge bias and thus the real exchange rate, the wage inequality and the worldwide growth rate. For example, under technological-knowledge adoption with positive international IPRs protection and substitutability, wages tend to be higher in the Innovator, technological knowledge and intra-country wage inequality are biased towards the tradable sector, and the real exchange rate accommodates the Balassa-Samuelson proposal.