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Impact of Intellectual Property Rights on Disembodied Knowledge Trade With Reference To Technology Transfer

1. Knowledge In Technology Transfer
In a globalised world, countries need not depend only upon their own resources to acquire the technologies they need for production. The other resources include those that can be acquired through trade related to technology blueprints, patents, the right to use patents and various kinds of technical services. Technology trade is synonymous with technology transfer. Such trade includes both embodied (in artefacts) and disembodied (blueprints, patents and intangible or service) forms of technology. Technology gap and product cycle theories of trade, formulated to explain the shifting location of technology, focused on embodied forms of technology trade. They attempted to explain the competitive advantages of countries that were successfully able to embed their technological advancements into the trade in new types of technology, referred to as embodied goods. However, much less is known about the factors influencing the trade and transfer of disembodied technologies.[1]

1.1. Knowledge As An Object
Knowledge should be considered a far broader term than technology. It does not only encompass a set of techniques available at a company, but also information related to organization and management as well as combining technical processes. Technology consists of all information required to implement the production.

This information, however, may take various forms of knowledge. An effective technology transfer should include a vast scope of knowledge, especially technique-related, defined as technology. Stores of knowledge may be classified into: codified and unconfined as well as embodied and disembodied. Furthermore, it can be distinguished between explicit knowledge and tacit knowledge. Explicit knowledge can be recorded and codified – taking a form of studies, analysis and products. Hidden knowledge pertains to a scope of skills of certain people gained through experience. Tacit knowledge does not only relate to information, but also to personal beliefs, judgments and intuition. This kind of knowledge is strictly connected with human capital, which remains its only carrier at the same time.[2]

1.2. Diversity Of Countries In Disembodied Knowledge Trade
Disembodied technology trade can take distinctive structures. The form of technology trade chosen may depend upon characteristics of the technology (the extent to which tacit knowledge and continuous monitoring or customization are important) and also on the institutional environment surrounding environment such as the tightness of IPR protection.

The form of disembodied technology trade preferred is quite different across countries. In the case of France, the UK and USA, the largest proportion of technology receipts is on account of royalty and license fees due to the out-licensing of technology and other intangible assets. Hungary, Sweden and Finland also use this form of transfer quite extensively in their receipts. For most of the other OECD countries, receipts on account of technology related services are the biggest component of technology receipts. R&D carried out abroad is a relatively small proportion of technology receipts in all cases.

The purposes behind this heterogeneity in the form of traded technology could be numerous. Initially, this may just mirror the fundamental qualities of the advances being exchanged. More tacit technologies are likely to be traded as technology related services or customized R&D services. Second, the form may be influenced by the appropriate conditions of technology. Licensing is profitable only in the face of tight IPR which can be enforced reasonably quickly. Technology related services may depend less upon IPR changing hands as, in the sale and purchase of technological services, the intellectual property always belongs to the buyer of the service. In conclusion, they may relate nearly to option plans of action for the arrangement of innovation picked by firms in various national settings.[3]

2. Intellectual Property Rights And Knowledge Trade
As expressed by the current writing on IPRs [Intellectual property rights], since knowledge is non-rival in nature, it can be freely available (apart from the cost of transmitting knowledge). If this were the case, however, the market or firms would under invest in the production of new knowledge, because innovators would not be able to recover their costs. By giving pioneers the restrictive rights to market their scholarly resources over a specific timeframe [20 years for patents], IPRs offer a motivator for the generation of learning. Subsequently, on a basic level IPRs ought to assume a noteworthy part in technology trade.[4]

A successful security of scholarly resources abroad may in principle additionally empower global commercialization of information by advancing firms. Under a powerless or careless protected innovation rights administration, the provision and sharing of tacit knowledge and intellectual assets with domestic firms becomes too risky when the threat of imitation posed by the partner or by third firms is strong.

When we take a gander at the IPR on learning exchange, two primary discoveries originate from our examination. Nevertheless, the impact of IPR protection differs according to countries’ income level and technological capacity. Stronger IPR rights can deter technology contracting in developing economies. Second, the effects of IPR protection are found to differ across industries. Stronger protection is found to be irrelevant to attract knowledge contracting in R&D-intensive industries, contrarily to middle R&D-intensive industries.[5]

2.1. Trips And IPR
The creation, remarkably, of the Trade-Related Intellectual Property Rights Agreement (TRIPs) at the Uruguay Round (1986-1994), brought up various issues on the relevance of fitting the principles of IPR worldwide and the subsequent additions for the creating scene regarding development and technology transfer. Are more grounded protected innovation rights a sufficient system to fortify learning exchange to creating countries? Additionally, is reinforcing patent assurance an effective approach to advance development in these regions? For developing countries, resolving these questions is essential in order to assess the implications in the process of technology catching-up and the design of complementary policies to IPR reforms.

2.2. Impact Of IPR On Disembodied Knowledge Trade
Patent protection is a priority, a major condition when transferring knowledge; at least in a number of industries. However, to the extent that patents rights are linked to the exercise of market power, and therefore, to monopoly markets, patent rights might not be pertinent when commercializing knowledge in poor income countries. So, even when patent protection is available in the host country, and there is not an imitation threat, patents might not be relevant for technology trade.

Thus, for countries achieving certain market size [some income level], it has been contended that fortifying IPRs may upgrade the advancement of innovation markets especially when conditions to retain learning are available - whether a past imitative has been created or the nation have has an imaginative limit , and an ensured benefit identified with popularize advances in that market additionally exist.

Be that as it may, the issue is more perplexing since IPRs influence global technology trade - when incentives and conditions for technology markets exist in several ways. Literature on IPRs and trade concludes thus that stronger patent protection [or IPRs] has indeterminate effects because firms might have different answers to foreign patent protection and so their interest to further commercialize knowledge assets [or knowledge services] can both increase or not. There is some evidence suggesting that IPR protection constitutes a main determinant in technology transfer decisions by multinational firms in spite of their being very less literature on the effects of IPR on knowledge trade especially that of disembodied knowledge trade.

Furthermore, it is expected that the impact of strength of IPRs (or the extent of imitation threat), will vary not only across countries, but especially across sectors. Since the ease of imitation differs across industries, the reliance on IPRs protection varies, and consequently, the extent to trade disembodied knowledge overseas differs. It is acknowledged that pharmaceuticals and chemicals rely essentially on patents to appropriate returns and deter imitation, whereas machinery, such as the automobile industry; metal working industries, etc. relies more in other means of appropriation.[6]

According to different survey studies, multinational firms report that intellectual property protection is a major condition when transferring knowledge assets cross borders through licensing to third parties. Under a weak IPR regime the provision and sharing of tacit knowledge and intellectual assets with domestic firms becomes too risky when the threat of imitation posed by third firms (or partners) is strong. In addition, the level of IPR influences firms’ choice concerning the technologies’ vintage to commercialize in the foreign markets.[7]

Nevertheless, the theoretical literature provides mixed conclusions on the effects of stronger IPR on technology-transfer (FDI, trade, licensing or joint-ventures). A more optimistic vision prevails about the impact of stronger IPR on licensing activity. By improving the legal framework for the enforcement of contracts (patent licensing, arm’s length contracting, etc.) stronger IPR may reduce the costs of technology transfer, stimulating technology contracting in reforming countries. Stronger patent protection lowers the costs of enforcing contracts (i.e. monitoring, litigation costs, etc.) mitigating the costs of technology transfer. Therefore, the rent share accruing to the licensor rises with patent strength, raising the returns to licensing. By modifying imitation costs and reducing consequently licensing costs, stricter IPR would increase the licensor’s profit by two main effects: a higher economic return from licensing (“the size effect”) and a superior rent share (“the distribution effect”). In turn, a higher rent stemming from licensing increases the return to R&D and the incentives to innovate. Furthermore, by reducing the relative transaction costs, i.e. fixed costs of reaching and enforcing licensing contracts, stronger patent rights may shift incentives towards licensing away from FDI or trade.

Nevertheless, the economic gains previously mentioned should be confronted to the potential detrimental effects of stronger IPR (i.e. patent protection) on technology contracting. An increase in patent protection may have offsetting effects upon licensing propensity. On the one hand, stronger patent protection increases the efficiency of licensing contracts, but on the other hand, also enhances the value of the innovation itself and thus, raises the opportunity cost of licensing. Patent effectiveness is likely to increase patent propensity, but may also decrease the share of patented innovations that are licensed.

2.3. Required Reforms In This Domain
Reforms in intellectual property may make one type of innovation exchange more appealing than another and along these lines initiate substitutions among the diverse methods of exchange. Intellectual property protection may provoke a “market expansion effect” on international trade of goods, or a “market-power effect” which is translated, into higher prices of technologies, and thus, reduced flows of knowledge commercialized towards those countries. Accordingly, a strengthening of a country’s patent regime would tend to increase the local demand as foreign firms would face an increasing market for their products or services once the pirates are displaced. On the other hand, a firm may choose to reduce its sales in a foreign market as a response to stronger IPRs protection because of its greater market power in an imitation safe environment.[8]

This paper has endeavored to reveal advance insight into the effect of national contrasts in licensed innovation rights on universal learning contracting. It has brought up the constrained part of patent insurance to animate the exchanges in innovation. The commitment of this paper has been twofold. First, this study has shown that strengthening patent protection might have a differentiated impact across countries. According to our results, stronger patent rights might not be enough to stimulate technology contracting in developing economies. Second, to the extent that imitation threat varies across sectors, a differentiated impact of IPR on trade knowledge has been identified across industries. Nevertheless, our findings show that the strength of IPR may have a positive impact on international knowledge contracting. IPR protection is found to be negligible to explain knowledge contracting in the high technology industries, although it is for middle high tech industries. Hence stronger protection is not sufficient to attract knowledge contracting in R&D intensive industries, whereas it might facilitate technology transfer in more mature industries. Finally, our results across industries differ from the findings reported by several survey studies about the relative importance of patents as appropriate. In terms of knowledge contracting, some country-policy suggestions arise from this empirical evaluation. Stronger protection of intellectual assets might not be enough to attract technology alliances and patent licensing with foreign firms. At this respect, the removal of barriers (institutional economical limited access to finance, etc.) both to innovation and technology markets should strengthen the incentives to technology contracting. For instance, the adequate supply of engineering and management skills increases the countries’ absorption capacity, decreasing technology transfer costs. At long last, the mitigation of other market flaws (e.g. control of FDI and innovation exchange, antitrust and rivalry approaches, and so forth.) ought to reinforce receptivity of host nations to innovation coordinated efforts with non natives.[9]

3. Conclusion
We know a little about the impact of relative cost changes for disembodied versus embodied knowledge transfer, even though both appear to be changing at a rapid pace. Communicating knowledge-intensive information may become cheaper through video-conferencing compared to telephone calls, while at the same time the knowledge embodied in traded inputs becomes more movable because trade barriers and transportation costs are falling. Our results suggest that spatial frictions - in form of both costs of trading goods and of transferring knowledge - cannot be addressed independently. This research provides a starting point for assessing the impact of such changes for production and trade across the globe.

Even in the world of the internet we find that spatial barriers to disembodied knowledge transfer are large, and this has implications for many fields of economics, such as industrial organization, productivity and innovation, and development. In industrial organization it has been shown that firms that are part of a domestic production chain do not nearly transfer as many goods within the chain as existing theories of vertical integration suggest, a finding which may be due to the fact that the key inputs determining firm organization are knowledge inputs. If so, the spatial organization of firms depends critically on the spatial barriers to disembodied knowledge transfer, and as spatial barriers to disembodied knowledge transfer fall, vertical links between firms will be increasingly invisible as there is less embodied knowledge transfer and more disembodied transfer.

IPR protection is found to be negligible to explain knowledge contracting in the high technology industries, although it is for middle high tech industries. Hence stronger protection is not sufficient to attract knowledge contracting in R&D intensive industries, whereas it might facilitate technology transfer in more mature industries.

My findings are consistent with the view that the returns to the accumulation of knowledge are reduced in the presence of barriers to effective knowledge transfer, which has implications for the literature on innovation and productivity. Moreover, my work suggests in general that the more knowledge intensive a production process is, the less likely its knowledge will spatially diffuse.

End-Notes
[1]Suma Athreye Yong Yang,Disembodied Knowledge Flows In The World Economy- Working Paper No. 3 December 2011, p. 3
[2]Dorota Roszkowska,Approaches To International Technology Transfer Measurement – An Overviewp. 2
[3]Suma Athreye Yong Yang,Disembodied Knowledge Flows In The World Economy- Working Paper No. 3 December 2011, p. 14
[4]Suma Athreye Yong Yang,Disembodied Knowledge Flows In The World Economy- Working Paper No. 3 December 2011, p.3
[5]Elif Bascavusoglu, Maria Pluvia Zuniga,The Effects Of Intellectual Property Protection On International Knowledge Contractingp. 4
[6]Suma Athreye Yong Yang,Disembodied Knowledge Flows In The World Economy- Working Paper No. 3 December 2011, p.7
[7]Elif Bascavusoglu, Maria Pluvia Zuniga,The Effects Of Intellectual Property Protection On International Knowledge Contractingp. 7
[8]Suma Athreye Yong Yang,Disembodied Knowledge Flows In The World Economy- Working Paper No. 3 December 2011,p. 4
[9]Elif Bascavusoglu, Maria Pluvia Zuniga,The Effects Of Intellectual Property Protection On International Knowledge Contractingp. 25

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