By Ana Maria Santacreu, Economist
We live in a world in which countries have become highly interconnected through production linkages, international trade and knowledge flows. The increase in the exchange of ideas around the world has been facilitated by these interactions.
In a very interlinked world, protecting locally developed ideas is important for promoting innovation. Several countries have adopted policies aimed at increasing intellectual property rights, such as patents, trademarks and copyrights. These intellectual property rights can be traded across countries.
The Organization for Economic Cooperation and Development (OECD) collects data on these cross-country transactions. In particular, it collects data on “payments and receipts between residents and nonresidents for the authorized use of proprietary rights (such as patents, trademarks, copyrights, industrial processes and designs including trade secrets, and franchises).”
The figure below shows those data for royalty receipts as a percentage of gross domestic product (GDP), for a sample of OECD countries in 2014. It also shows data on research and development (R&D) intensity for the same countries in 2014.1,2 Both variables are in logs.
We observed a strong positive correlation between royalty income received and R&D intensity, which reflects innovative activity in the country.
Mexico and Chile have low R&D intensity and receive less income in royalties. Switzerland, Sweden, Finland and the U.S. are very innovative countries. That is, they have high R&D intensity and receive large royalty income. Intellectual property rights are strong in these countries, and this promotes higher innovative activity.
At the same time, the fact that nonresidents are paying income to be able to use the patents and trademarks developed in these innovative countries reflects the existence of the exchange of ideas and knowledge flows from these countries to the rest of the world.
Policies aimed at strengthening intellectual property rights in a country help to promote innovation, while facilitating the exchange of ideas around the world.
1 R&D intensity is expressed as R&D spending as a percentage of GDP. These data reflect that “expenditures for research and development are current and capital expenditures (both public and private) on creative work undertaken systematically to increase knowledge, including knowledge of humanity, culture, and society, and the use of knowledge for new applications. R&D covers basic research, applied research, and experimental development.”
2 References to data sources: Research and development expenditure (% of GDP) (United Nations Educational, Scientific, and Cultural Organization [UNESCO] Institute for Statistics). Charges for the use of intellectual property, receipts (World Bank World Development Indicators). GDP (World Bank WDI).