We have previously cited evidence that patents function differently in different industrial sectors. There is also a growing body of research on the relationship between patents and innovation across countries and time. Using mainly 19th-century data, Lerner (2002) and Moser (2003) find that instituting a patent system or strengthening an existing patent system does not produce more domestic innovation although the latter does induce inventors from other countries to patent more in the country making the change. It may also induce foreign multinationals to transfer more technology to affiliates in the country (Branstetter et al., 2003). Sakakibara and Branstetter (2001) studied the effects of a statutory change in Japan allowing multiple claims per patent, as has always been the case in the United States. They found that the effective broadening of patent scope had a very small positive effect on R&D activity by Japanese firms. Lanjouw and Cockburn (2000) found some limited evidence for attributing an increase in Indian research addressing developing country needs to patent reforms of the 1980s, which provided increased protection.1 The effect leveled off, however, in the following decade. Scherer and colleagues (1959) investigated the consequences of Italy’s moving from a no-patent to a patent regime in pharmaceuticals; they did not find a significant effect. Using firm-level survey data for Canada, Baldwin and colleagues (2000) found a much stronger relationship running from innovation to patenting than in the reverse direction. Firms that innovate take out patents, but firms and industries that make more intensive use of patents do not tend to produce more innovation. In the United States manufacturing sector, however, in a model that explicitly controls for mutual causation between patenting and R&D, Arora and colleagues (2002) find evidence that patenting is an important stimulus for R&D.
Other positive results are those of Park and Ginarte (1997) using data across 60 countries for the period 1960-1990. They found that the strength of intellectual property (IP) protection (an index of pharmaceutical coverage, participation in international agreements, lack of compulsory licensing, strength of enforcement, and patent duration) was positively associated with R&D investment in the 30 countries with the highest median incomes. Elsewhere, the relationship was positive but not significant. These results, however, are cross-sectional and fail to account for the reverse causality between conducting R&D and having a robust patent system.
The conclusions from this body of empirical research on the effects of patents are several but mostly tentative (Hall, 2003b). In developed countries, at least in manufacturing, patenting stimulates innovative activity broadly, but the stimulus varies among industries. Introducing or strengthening a patent system, however, unambiguously results in an increase in patenting and may encourage the strategic and tactical use of patents with attendant costs and possibly adverse