Patent Applications and Characteristics of National Economies 131

In this section we quantitatively examine how patent applications by residents and by non-residents in a country are related to the characteristics of national economies, using the data available in the WDI database.

3.1. Domestic Patent Applications

The number of patent applications filed by residents (domestic patent applications), relative to population size varies considerably across the five countries. As shown in Table 1, relative to the population, the level of patent applications in Japan and Korea is 200 times greater than that for Thailand. The level in China, although rapidly increasing, is still 40 times lower than that for Japan. These variations, however, are consistent with the significant variation in GDPper capitaand R&D intensity among the five countries as shown below.

The level of patent applications increases in tandem with a country’s incentives for inventions and patenting and its research capability. Thus, we can postulate that the total domestic patent applications (patent_applications_residents)would be high if the population is high; if the income per capitaof the population is high, resulting in a demand for products embodying patented technologies and if the level of R&D investment by domestic firms relative to GDP is high. More specifically, we can postulate the following relationship across countries:

(1)

Here indicates the GDP per capita, PPP (constant 2005 international dollar), of country i, and indicates expenditure on R&D (percentage of GDP). We implement both a cross-section estimation over 58 countries for the year 2002 and a pool estimate for unbalanced sample from 1996 to 2005, with yearly dummies.

Yearly time dummies capture global change over time, such as stronger protection of IPRs, although this would vary significantly across countries.

The above three explanatory variables are not only highly significant but also account for close to 80 per cent of the variations in each model according to Table 3. In particular, the population coefficient is close to one, as would be expected, given the other intensity variables. If we double the size of the economy, we obtain double the number of patent applications. GDP per capitahas an elasticity of 0.71 for cross-section estimation and 0.45 for pool estimation, which reflects both cross-cross-section and over-time variations.

Thus, per capitaincome is important. In addition, R&D intensity shows an elasticity of 0.92 for cross-section estimation and 1.13 for pool estimation.

The estimated results explain the variations across the five countries; although Japan and Korea apply for many more patents than the benchmark specification suggests: Singapore applies for significantly fewer patents than the benchmark. According to this estimate, the more than five-fold difference in GDP per capitabetween China and Japan (see Table 2) accounts for roughly four times more applications by Japan and the R&D intensity difference (a 1.8 percentage point difference, see Table 2) accounts for roughly eight times more applications by Japanese residents. Differences in R&D intensity therefore matter more.

The estimated results in Table 3 also help to explain the variation in the increase of domestic patent applications over time. Numbers have increased significantly over the past decade, except in Japan: in

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132 China they increased 9.3-fold from 1995 to 2005. This reflects the increasing per capitaincome as well as increased R&D intensity of these countries. In the case of China, R&D intensity increased by 0.77 per cent from 0.57 per cent in 1996 to 1.34 per cent in 2005 and the GDP per capitaalso doubled during this period.

In the case of Thailand, R&D intensity increased from 0.12 per cent in 1996 to 0.25 per cent in 2004, although the increase in GDP per capita was limited to 10 per cent. However, domestic applications in China and Thailand have increased significantly more than the estimated results in Table 3 suggest. This could reflect the increasing protection of IPRs in these economies. In Japan, where there was a small increase in both GDP per capitaand R&D intensity, applications have increased only modestly, although the average number of claims has increased significantly from five to 9.5 and requests for patent examinations have also increased significantly (see the national report for Japan).

In sum, as the economy develops in terms of both per capitaincome and R&D activity, the number of domestic patent applications increases significantly. The experience of the five Asian countries is consistent with this pattern.

Source: World Development Indicators

Table 1. Domestic and Foreign Patent Applications

Table 2. Main National Characteristics

Source: World Development Indicators

*Research and development expenditure for Japan and Thailand are those for 2004.

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133

Note. Time dummies are added to pool estimation.

3.2. Foreign Patent Applications

As shown in Table 1, the level of foreign applications (by non-residents)relative to the size of the economy in terms of GDP did not vary as much as the level of domestic applications in relation to its population.

Foreign applications (patent_applications_non-residents)in a country would be high if the population were high (economy of scale) given that there is an additional cost for applying patent protection (such as translating) and using the invention abroad. If incomes were high, leading to a demand for products embodying patented technologies and if the country were capable of manufacturing R&D-intensive products, a non-resident would seek to protect his invention in a country where it can be manufactured.

More specifically, we can postulate the following relationship across countries:

(2)

Here indicates the GDP per capita,PPP (constant 2005 international dollar) (current international dollar) of countryi, and indicates the share of high-tech manufactured exports of country i. The estimate covers more than 69 countries for 2002 and over 113 countries, giving an unbalanced sample, from 1988 to 2005.

Table 2 shows the results of the estimation. The above three explanatory variables are not only highly significant but also account for 60 -80 per cent of the variations in each model. In particular, the elasticity of the population is close to 1 (0.93 for the cross-section estimation and 0.96 for the pool estimation).

GDP per capitahas the elasticity of 0.87 for cross-section estimation and 1.14 for pool estimation, which reflects both cross-section and over-time variations. Compared with models 1 and 2, the population coefficient is lower relative to GDP per capita, which is not surprising, given that population size represents both the size of the market and the pool of inventors in models 1 and 2, but only market size in models 3 and 4. The percentage share of manufactured high-tech exports has the coefficient of 0.34 for cross-section estimation and 0.24 for pool estimation.

Table 3.Domestic and Foreign Patent Applications (Cross-Section and Pool Estimations)

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134 This helps us to understand the changes and variations in foreign patent applications in the five countries over time. These more than doubled in China, Korea and Singapore, due to their rapid economic growth in terms of GDP per capitaas well as their increased specialization in the manufacture and export of high-tech products. In the case of China, real income per capitadoubled and the share of high-tech exports increased from 10 to 31 per cent. As for cross-country variations, the level of foreign applications in Korea and Singapore seem very high, partly because they are more specialized in the production and export of these products. Singapore’s share amounted to 57 per cent, compared with 23 per cent for Japan.