Do Stronger Patents Stimulate or Stifle Innovation? The Crucial Role of Financial Development

Angus Chu, Guido Cozzi, Haichao Fan, Shiyuan Pan and Mengbo Zhang

Journal of Money, Credit and Banking, 2020, vol. 52, issue 5, 1305-1322

Abstract: This study explores the effects of patent protection in a research and development (R&D)‐based growth model with financial frictions. We find that whether stronger patent protection stimulates or stifles innovation depends on credit constraints faced by R&D entrepreneurs. When credit constraints are nonbinding (binding), strengthening patent protection stimulates (stifles) R&D. The overall effect of patent protection on innovation follows an inverted‐U pattern. By relaxing the credit constraints, financial development stimulates innovation. Furthermore, patent protection is more likely to have a positive effect on innovation under a higher level of financial development. We consider cross‐country panel regressions and find supportive evidence for this result.

Date: 2020
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https://doi.org/10.1111/jmcb.12629

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Working Paper: Do Stronger Patents Stimulate or Stifle Innovation? The Crucial Role of Financial Development (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:52:y:2020:i:5:p:1305-1322

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