4.1. Establishing the Economic Models
1. Impact on IP CreationThis report followed model (A) using time-series data from 1976 to 2005 in order to analyze whether IP creation influences the number of patent applications and registrations. The reason these are added here is that we assumed the number of patent applications or registrations could be affected by R&D or GDP.
(A)
lnP = c + α1lnRD + α2lnGDP + α3lnIP + ε
where P is the number of patent applications or registrations, IP is the intellectual property index, and εis the error term.
On the other hand, following model (B) we included R&D and the IP index in order to analyze whether royalties from technology exports affect the number of patent applications and registrations.
(B)
lnP = c + γ1lnRD + γ2lnBenefit + γ3lnIP + ε
where Benefit signifies royalties from technology exports.
2. Impact on the Economic Effect of Business Activities
We have used the protection function approach for analyzing whether capital stock, labor and intellectual property influence GDP. The period analyzed was 1972 to 2000.
(C)
lnGDP = c + β1lnK + β2lnL + β3lnIP + ε
where K is net capital stock, L is the number of employed persons.
3. Impact on Foreign Direct Investment
Here both GDP and population are calculated as variables, and we presumed the model (D) using time-series data from 1971 to 2006 in order to analyze whether intellectual property has an influence on FDI.
(D)
lnFDI = c + δ1lnGDP + δ2lnPOP + δ3lnIP + ε
where FDI is foreign direct investment, and POP is the total population.
4.2. Results of the Analysis
First, we would mention that we used KIPO’s published data concerning the number of patent applications and registrations and data from the Ministry of Science and Technology (MiST) for total domestic R&D.
The GDP figures were provided by the Korea National Statistical Office (KNSO) in 2000. We calculated the IP index from 1961 to 2006 using the same methodology as Ginarte & Park (1997). Unfortunately, Korea’s IP index in Ginarte & Park, which seemed to be wrongly calculated with respect to the year Korea signed up to international treaties and misunderstandings in its patent systems, is different from the IP index we calculated. Royalty figures from technology exports were provided by the Ministry of Commerce, Industry and Energy (MiCIE). The data on capital stock was provided by the net capital stock in Pyo’s article (2003)
[Impact of the Intellectual Property System on Economic Growth ]
86 and the data on the number of employed persons was provided by the KNSO. The data on FDI was provided by the MiCIE, and on population by the KNSO. In addition, all variables were changed into log values.
Table 1 shows the results of estimating model (A). First, the value of R2 is similar to 1, which means that model (A) is reliable. Among factors affecting the number of patent registrations, the estimated value for R&D is 0.841 and the t-value equals 15.6. However, it shows that R&D has little effect when both GDP and the IP index are included together in the regression equation. The IP index showed a negative number of patent registrations. On the other hand, as a dependent variable the number of patent applications was positively affected by R&D, but this had little influence on the number of patent applications when other explanatory variables such as GDP and intellectual property were included.
In this way GDP positively affects the number of patent applications, while the IP index was not statistically significant but showed a negative sign. Therefore, the result demonstrates that the stronger the IP
protection, the lower the number of patent applications and registrations.
Table 2 shows the results assumed by model (B). The value of R2 in this model is also close to 1, meaning that the model is reliable. It shows that royalties obtained from exports of technology and R&D have a positive influence on the number of patent registrations. It is notable that R&D still influences the number of patent registrations, although other explanatory variables have been included. However, the IP index was not statistically significant, but showed a negative sign so that the result of model (B) may be similar to that of model (A). On the other hand, the number of patent applications was positively affected by R&D, but, as expected, was not concerned with royalties obtained from technology exports.
Table 3 shows the results including explanatory variables such as labor, capital stock, GDP, POP and the IP index. Model (C) is highly reliable because the value of R2 is very close to 1. When estimating production function, capital production elasticity was 0.394, labor elasticity 0.709, and both are statistically significant.
The IP index in model (C) had a positive influence on GDP, which means that strengthening intellectual property positively affects productivity. Although GDP positively affects FDI, the IP index does not influence it. This means that the enforcement of IP laws does not draw in FDI.
Notes:
1. t-values are in parentheses.
2. ***(**, *) indicates significance at the 1% (5%, 10%) levels respectively.
Table 1. Estimated Results: Impact on IP Creation
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Notes:
1. t-values are in parentheses.
2. ***(**, *) indicates significance at the 1% (5%, 10%) levels respectively.
Notes:
1. t-values are in parentheses.
2. ***(**, *) indicates significance at the 1% (5%, 10%) levels respectively.
5. Discussion and Proposal
This paper deals with the impact of the IP system on economic growth in Korea through empirical analysis.
Indeed, granting a patent for an invention relies upon the industrial patent policy of each country.
For example, exceptions to patentability may be different according to the industrial development or technical level of the country. Certain regulations concerning exceptions to patentability in Korea have been rescinded over the years and the KPA has been expanded. It is remarkable that such revisions have recently been carried out, in particular in the area of IT and biotechnology. Based upon these revisions of its patent laws the Korean patent system has been globalized.
Korea has made great strides with respect to patent application and registration, in particular since the 1990s. As mentioned in Part 4, the analysis on the impact of the IP system on economic growth Table 2. Estimated Results: Impact on IP Creation (continued)
Table 3. Estimated Results: Impact on Economic Effects of Business Activities, Impact on FDI
[Impact of the Intellectual Property System on Economic Growth ]
88 demonstrates that both R&D and GDP have close relationships with the extent of patent protection in Korea. There seems to be a relationship between the IP system and GDP shown in Fig. 1 and 6, and also by economic analysis (see Table 1). In addition, it is interesting to see that there seems to be a relationship between the IP system and IP creation shown in Fig. 1: however the economic analysis could not show this relationship. On the contrary, it shows that the number of patent registrations was in almost inverse proportion to the IP index (see Table 1). In other words, the stronger IP protection in Korea is, the lower the number of patent registrations or applications.
Reinforcement of the IP system in Korea ultimately appears to show promotion of technology transfer (see Fig. 4). Looking in greater detail, royalties from exports of technology are shown to be related to the number of patent registrations, not patent applications (see Table 2). This is due to technology transfer abroad, mainly using registered patent rights. Furthermore, it is noteworthy that there seems to be a relationship between the IP system and FDI shown in Fig. 1 and 5: however the economic analysis could not demonstrate this (see Table 3). On the contrary, it shows that strengthening IP protection in Korea does not affect FDI.
According to the economic analysis it is shown that a policy to strengthen IP protection in Korea has a positive influence on technology transfer, R&D and GDP, but not FDI. In addition, strengthening IP protection in Korea does not affect the number of patent applications or registrations. Taking into consideration these results from our economic analysis we consider that political measures are still needed for maximizing the positive effects of economic growth by strengthening IP protection in Korea. As to IP policy in Korea, more open policies should be adopted so that its IP protection may reach the level of the developed countries.
References
Ginarte, J.C. & W.G. Park, Determinants of Patent Rights: A Cross-National Study, Research Policy 26 (1997) 283-301.
Keun Lee, IPR Policies and Economic Development: the Korean Lessons, http://www.jst.go.jp/asts_t/files/session_01/15_pre.pdf.
Hak-Gil Pyo, Estimation of Capital Stock over Industries and Assets in Korea, Analysis of Korea’s Economy (in Korean), 2003.
Jaeyong Song, Intellectual Property Regimes, Innovative Capabilities, and Patenting in Korea, Seoul Journal of Business, Vol. 12, No. 2 (Dev. 2006).
Korean Intellectual Property Office Homepage: http://www.kipo.go.kr/
Korea National Statistical Office: http://www.nso.go.kr/
Korean Ministry of Science and Technology Homepage: http://www.most.go.kr/
Korean Ministry of Commerce, Industry and Energy Homepage: http://www.mocie.go.kr/
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