Intellectual property plays an important role in the global economy through its impact on technology diffusion, knowledge transfer and competition. There is, however, dramatic heterogeneity across both industries and countries in these effects and their implications for economic growth. In this paper, we exploit a newly developed algorithmic concordance that links patents to industry and trade classifications to characterize how patents affect the structure of global value chains. Using recent techniques to decompose gross exports and construct bilateral measures of value-added trade, we test how domestic and international (bilateral) patenting specifically related to different industries affects production fragmentation as measured by decreases in the value-added export (VAX) ratio.
Over the period 1999-2009 for 18 industries and 35 countries, we find that increased international patenting is associated with greater production fragmentation. This effect is particularly strong for “imported” or inbound international patent applications. While there is some heterogeneity among industries in this relationship, there is much greater heterogeneity among countries: For several countries, “exported” patents reduce production fragmentation and “imported” patents increase production fragmentation. As empirical research into the structure of global value chains expands, the role of patents and other forms of intellectual property merit careful consideration. The exploratory results we present are intended to provide a point of departure for continued characterization of these interrelationships.
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