Real-Life Lessons for the Developing World
Chapter 2: Innovation
Over the last few decades, innovation has become a widely used concept. It is frequently associated with globalisation and economic prosperity. The current rules-based, multi-lateral trading system presents innovation as the global way forward. It is often stated that encouraging innovation is key to economic growth and sustainable development, especially for developing countries. Furthermore, with the emergence of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), a great deal of attention has focused on the role of intellectual property rights (IPRs) and their impact on innovation and technology transfer. Patent rights, or IPRs more broadly, have become central to many issues surrounding innovation. The debate in this area has created a constant need for developing countries to enlarge their understanding of the concept of innovation including the necessary trade-off between innovation and patents. Taking this into account, this chapter outlines the issues surrounding the concept of innovation. The objective is to highlight and present the economic rationales of patent rights and to discuss how these rationales apply to the context of innovation. The familiar argument is that patents create incentives to innovate; yet little is known about how those incentives work in practice. It is still an open question in the literature as to whether patents actually encourage and promote innovation. Although the empirical evidence is to some extent ambiguous, it might be interpreted to indicate a positive correlation in favour of the pharmaceutical industry.
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