Research on the effects of patent protection on innovation and technology transfer in the cross-country pharmaceutical industry adds to our understanding of the underlying forces driving a country's innovation level. This chapter extends the research of Qian (2007) to evaluate the effects of patent reforms on inward foreign direct investment (FDI) establishments and imports in the pharmaceutical sectors. It also attempts to integrate all the findings on innovations, technology transfer, and international trade, and discusses potential policy implications. By thoroughly controlling the country covariates, through a combination of matched sampling techniques with fixed-effect panel regression models, the analyses arrive at robust results across the various model specifications. First, national pharmaceutical patent protection alone does not stimulate domestic innovation, as estimated by the US patent awards and domestic R&D. FDI establishments and pharmaceutical exports did not increase significantly either. Imports, however, did flourish. Second, national patent law implementation demonstrates conditional importance for innovation acceleration and technology transfer, conditional upon certain country variables. Third, terms of trade are likely to decline immediately upon the new implementation of IPR.
Keywords: IPR, pharmaceutical, FDI, innovation, TRIPS, development, cross-country analysis, matched sampling, pharmaceutical imports and export