Intellectual property protection, skilled migration and income inequality

Project leaders

Riccardo Leoncini, Ying-yi Tsai

Agreement

TAIWAN - NSTC - National Science and Technology Council

Call

CNR/NSC 2014-2015

Department

Social sciences and humanities, cultural heritage

Thematic area

Social sciences and humanities, cultural heritage

Status of the project

New

Research proposal

Key issues: this research project centers on the following sets of questions:

A. IPRs, Organization of Production and Skilled Migration

(1) Are IPRs truly essential to outsourcing decisions? And if so how do they influence the organizational mode through which multinational firms source inputs? How does IPR protection affect the stay or go decision of skilled workers, which comprise a country's human capital. In other words, is there a relationship between home country IPRs and brain drain? Does IPR protection affect the decisions of scientists, engineers, information technology specialists, and related professional about where to exercise their profession with respect to a country's innovative capacity and availability of knowledge? Also, to what extent does the relationship between IP regime and the brain drain differ across EDCs? Do gaps in the protection of IPRs in such countries nurture the brain drain of its most skilled workers?

(2) Does the outward migration of skilled workers impact the effectiveness of the IP system in reaching its goals of promoting innovation and technology transfer? In particular, when emigrants consist of a country's most talented workers, does a better institutional environment abroad induce them to directly and indirectly contribute to their home country institutions? Put differently, do skilled diasporas and migrant returnees influence how IP is protected in their home countries?

B. IPRs, Skilled Migration and Income Inequality

(3) Taking institutions, here IPR protection in the home country, as given and examining how it can determine the impact of skilled migration on home country innovation and development. This allows us to make conclusions on whether diasporas' and returnees' effects on home country innovation and development is influenced by the IPR regimes.

(4) Finally, what are the effects of strengthening developing countries' protection for intellectual property rights on skilled migration and income inequality in the global economy? More specifically, do skilled diasporas and migrant returnees cause divergence in their home countries, given the IPR regimes? And if so, how improvement of IPR regimes in the home countries can mitigate this trend of divergence? Also, to what extent does the relationship between skilled migration and income inequality differ across IPR regimes in the EDCs?

Applicants' Evaluation of the Relevant Literature

Project 1 - IPRs, Organization of Production and Skilled Migration (01/2014 -12/2014)

Skilled migrants often illustrate the additional required ability to become successful business actors, particularly in knowledge intensive sectors. They trigger innovation as they possess the theoretical and practical knowledge about the global and local opportunities. They also contribute by training and mentoring their counterparts at home and could have spectacular effects in boosting their home economies.
The only paper to our knowledge that studies how IPRs influence international migration of skilled workers is the theoretical contribution of McAusland and Kuhn (2011). In their model, IPR protection is endogenous. Governments use IPR policy as a tool to attract the creators of intellectual property, a concept referred to as "bidding-for-brains". They also detect an opposing force that reduces the incentives of a country facing brain drain to protect IPRs. This so-called "expatriate brains" effect occurs because innovations are heterogeneous in their usefulness in different countries. The assumption takes from Diwan and Rodrik (1991) that North and South may have differing technological needs, making innovations abroad less relevant to the country of origin. They show the negative effect of brain drain on IPRs to dominate for small or lagged economies, whereas the positive effect through a bidding war takes significance in more advanced countries. This is essentially due to the large distance to the frontier regarding IPR laws in developing countries that hinders them in using IPR protection to retain their brains. The above analysis suggests that IPR differential between two countries attract internationally mobile knowledge workers, but if a country loses the bid for brains, it falls in an intellectual property trap and resorts to a low level of IPR protection. As a result, incentives for IPR protection increase with innovative capacity and occur when bidding for brains complements the protection of locally produced intellectual property, creating more gains than intellectual free-riding. It is found that IPRs can only be of use once a country passes a certain stage of development. This argument tends to also hold for the effect of IPRs on brain drain, in the sense that a country can only attract international scientists and inventors through IPR protection after reaching a critical level of innovation capacity. Similarly, IPR laws are capable of having a significant effect on preventing the outflow of brains once a country surpasses this threshold. The answer to whether IPR protection affects the stay or go decision of skilled workers is therefore not obvious and can go either direction based on a country's innovative potential.
It is important to mention that IPRs are one of many factors that can influence the global flow of skills. Market size, foreign direct investment, and returns to human capital are among other factors that influence the decision of skilled migrants. In addition, IPRs being one of many home country institutions (some of which are presented in the upcoming section) makes it difficult to single out its effect on the decisions of scientists, engineers, information technology specialists, and related professional about where to exercise their profession.
Recent theoretical frameworks have been developed to view the question from a different perspective. More precisely, they try to explain whether the causality can work the other way around with emigration can increase the probability of a deterioration or an enhancement of home country institutions.
Mariani (2007) looks at how emigration may reduce corruption in the home country where agents can choose between rent-seeking and productive activities. Those engaged in the productive sector have the choice to move to a rent-free foreign country. The prospects of migration here reduce the relative return to rent-seeking, therefore decreasing the fraction of skilled workers who select into such activities.
Peng (2009) extends this framework to one with heterogeneous agents and shows the brain gain effects of migration in a rent-seeking environment can be due to a reallocation of talent into the productive sector. He shows that regardless of the depletion of productive resources, the possibility of migration could create incentives for more talented individuals to switch from engaging in rent-seeking activities to productive activities.
Spilimbergo (2009) uses a rather seminal empirical strategy to observe institutions from a general perspective and assess the impact of foreign-educated emigrants on their home country. The study strikingly finds that emigrants educated in democratic countries contribute to enhancing democracy in their home country by increasing the home country population's exposure to democratic values and norms. And Docquier et al. (2011) uses the same strategy to investigate the impact of emigration on democracy and economic freedom in the home country. They find that total emigration rate do indeed has a positive effect on the quality of these institutions in the home country, while the results are ambiguous for high-skill migration.
These results reveal open the door to interesting new possible explanations. One explanation for these results could be that the impact of emigration on home country institutions is only present when the skilled remain in their country of origin. Perhaps more interestingly, they conclude from the results that the channel at play here is the incentive effects of migration prospects on human capital formation rather than the transfer of norms and institutions. Beine and Sekkat (2013) however obtain more favorable results for the latter line of reasoning and once again confirm the feedback effect of values and norms from the diaspora to the natives of the original country. Their focus is the quality of "market friendly" institutions as measured by Kaufmann et al. (1998), namely voice and accountability, government effectiveness, regulatory quality, and control of corruption.
Using a similar empirical strategy as in Spilimbergo (2009), they find that an increase in the quality of home country institutions depends positively on their quality in the host country where emigrants reside. In the light of these findings and in contradiction to Docquier et al. (2011), they also find that the level of education of emigrants plays an important for such an impact to take place.

Project 2 - IPRs, Skilled Migration and Inequality (01/2015 -12/2015)

To the best our knowledge, theoretical analysis that investigates the effects of international patent policy on skilled migration and income inequality are scarce, even though Chu and Peng (2011) has studied the effects of cross-border patent policy on social welfare, economic growth and income inequality simultaneously.
The present project, therefore, aims to investigate specifically "what are the effects of strengthening developing countries' protection for intellectual property rights on skilled migration and income inequality in the global economy?" while developing an analytical framework that can relate our contribution with the literature on IPR protection and North-South trade (e.g., Lai and Qiu (2003) and Grossman and Lai (2004)), on IPR and outsourcing (e.g., Antras and Helpman (2004)) and on IPRs and skilled migration (McAusland and Kuhn (2011)).
We believe that one of the most interesting questions on this issue would be to understand as close as possible the current differential levels of innovation across countries. In particular, it would be useful to understand the relationship between inequality of opportunity, innovation and intellectual property rights (IPRs).
Thus, we motivate our research by considering the theory and evidence regarding the long run, cross country relationships between inequality, institutional quality, and innovation particularly focusing on inequality of opportunity determined by discrimination on initial conditions of societies. Our idea is that inequality of opportunity could affect innovation via its effect on demand for standardized manufactures and via the supply of participants in the market, and via its effect on institutional quality (and especially of IPRs). The economy's degree of inequality of opportunity is thus shown to be a determinant of whether or not the evolution of society is 'aristocratic', where high income is the source of social standing with lower need for IPRs or 'meritocratic', investing on high ability directly related on the effect of IPRS. Each social structure shows a different balance between production efficiency and social factors such as equality or mobility in terms of IPRs.

Research goals

This project aims to achieve the following two objectives:

first, to analyze and understand, in the presence of skilled migration, how intellectual property rights (IPR) regime in the host country influences the choice of multinationals while selecting their input suppliers and thereby their strategy for organization of production. We focus on the role of supplier performance in cross-border contracting relations, namely, their capabilities in undertaking relationship-specific investment.

second, to offer explanations for the role of skilled migration in brain circulation, and to show in turn how home country institutions can contribute to turn brain drain into gains in terms of research and development (R&D) as input and patents as output. The project shall in turn also study the implications of skilled migration on income inequality in the sending country.

At first sight, the comparison between Italy and Taiwan may seem surprising. However, several reasons contribute to this approach of international collaboration:

1. Taiwan is a source of stimulating comparison for Italy to organize innovation and research, given her strength in business applications of microelectronics and telecommunication components;
2. Taiwan has a comparable accumulated number of publications in applied sciences over the past 3 decades;
3. Italy and Taiwan have similar specialization profiles in qualitative terms. Taiwan specializes in technologies connected with electronics while Italy is visibly active in high precision industry.
4. In contrast to Italy, Taiwan has a university system and young research institutions inspired by the Anglo-Saxon model as a fair number of scientists have been trained in the United States. The transfer of individuals and knowledge between the United States and Taiwan, which is highly reminiscent of the brain drain/brain gain for New Zealand (Davenport, 2004) and for China, India and South Korea (Saxenian, 2003), is a specific feature whose effects would be interesting to look into.

Last update: 20/04/2024