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Oxford Economic Papers Advance Access originally published online on November 21, 2008
Oxford Economic Papers 2009 61(3):603-622; doi:10.1093/oep/gpn036
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© Oxford University Press 2008 All rights reserved

On welfare reducing technological change in a North-South framework

Hassan Benchekroun* and Sharmila Vishwasrao{dagger}

*Department of Economic, CIREQ. McGill University. 855 Sherbrooke West, Montreal, QC, Canada H3A-2T7; e-mail: hassan.benchekroun{at}mcgill.ca
{dagger}Department of Economics, Florida Atlantic University; e-mail: svishwas{at}fau.edu

JEL classifications: O14, O33, O34, F13, F23


  Abstract

Northern firms with patented technology can export goods to Southern markets and incur tariff costs or choose FDI and avoid the tariff. We examine the welfare effects of intellectual property protection under this scenario. When it is beneficial to do so, the Southern government offers patent protection in order to induce FDI. We find that a technological improvement in the North can reduce Southern welfare. After a technological improvement, the South still prefers that North does FDI, however longer patent protection may be required to induce FDI which can result in an overall decrease of Southern welfare. Given this immiserizing effect of technological change, Southern countries may choose to adopt higher cost technologies. We also show that a more effective technology does not necessarily require a longer patent protection to induce FDI.


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