NBER Publications by Kamal Saggi

This paper develops a North-South product model in which Southern imitation and the North-South flow of foreign direct investment (FDI) are endogenously determined. In the model, a strengthening of IPR protection in the South reduces the rate of imitation, which, in turn, increases the flow of FDI. The increase in FDI more than offsets the decline in production undertaken by Southern imitators, so that the South’s share of goods produced by the global economy increases. Furthermore, real wages of Southern workers increase even though prices of goods produced by multinationals exceed those of Southern imitators. The preceding results hold when Northern innovation is endogenously determined; in addition, the rate of innovation increases with a strengthening of Southern IPR protection.

This paper theoretically and empirically analyzes the effect of strengthening intellectual property rights in developing countries on the level and composition of industrial development. We develop a North-South product cycle model in which Northern innovation, Southern imitation, and FDI are all endogenous. Our model predicts that IPR reform in the South leads to increased FDI in the North, as Northern firms shift production to Southern affiliates. This FDI accelerates Southern industrial development. The South's share of global manufacturing and the pace at which production of recently invented goods shifts to the South both increase. Additionally, the model also predicts that as production shifts to the South, Northern resources will be reallocated to R&D, driving an increase in th...