Chapter 8: Innovation
8. 1. Innovation* INTRODUCTION Patent laws establish a system of intellectual property rights (IPRs) that secure returns on an innovation and provide protection against expropriation which in turn should increase the propensity to innovate. Innovation is thought to be crucial to the long-run growth potential of an economy. For a developing and transition economy such as China, there is a further prospect of obtaining advanced technology from more developed countries through foreign direct investment or FDI, which allows for ‘catch up’ in growth. The lack of strong productivity gains in China throughout its otherwise remarkable period of growth during the post-1979 reform period underscores the importance of assessing the determinants of innovation in its economy (Borensztein and Ostry 1996). Much of China’s growth has been attributed to capital accumulation, which is not unexpected, but points to the need for innovation to stimulate technological progress and thus improve long-run growth. China’s first patent law was passed in the same year as urban reforms began in 1984. With accession to the World Trade Organization (WTO) in 2001, China adopted the associated trade-related aspects of intellectual property rights (TRIPs) agreement and has harmonised its IPR system with international standards. However, ineffective enforcement of IPRs has been an issue. Despite the imperfect legal system, patents have nevertheless increased rapidly in China in the 2000s (see, for example, Hu and Jefferson 2009). This chapter examines the effectiveness of the patent law system in China. An assessment of the effectiveness of patent laws in producing innovation...
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