Patents, technical efficiency and innovation in Philippine manufacturing

Abstract

Under the new agreement signed by member nations of the World Trade Organisation, the protection of intellectual property rights now forms a vital part of world trade rules. The aim of this thesis is to identify the economic implications of these new rules in the Philippine economy. For a country like the Philippines, the implications of stronger rules on intellectual property rights warrant consideration not only because of the current international pressure from industrial countries to enforce these rights, but as a means of enhancing the technological capability of the country to generate appropriate technology for its development. A theoretical model has been constructed to analyse the likely impact of increased patent protection on output and reverse engineering efforts of developing countries. Comparative static analysis shows that a regime of stronger patent protection could have two opposing effects in developing countries. While the new rules will increase the supply of foreign technology available to Philippine firms, they will also raise the cost of acquiring these technologies, thus, the end result depends on which effect dominates. Any benefit from stronger patent protection in developing countries however, would depend on other policy settings in these countries particularly those policies that affect the ability of a country to absorb and exploit existing and new technologies. A review of the technological capability of the Philippines suggests that the current state of the country's technological development decreases the potential benefits that could be derived from a regime of stronger patent protection. While the country has a considerable number of educated and trained engineers, very few are engaged in research and development activities. Moreover inappropriate trade, industrial and macroeconomic policies have distorted technological choice and undermined the allocation of resources in the country. The challenge then for the government is to use the five year transitional period prescribed in the TRIPs agreement to correct its past mistakes in order to ensure that the benefits from strengthening patent protection would outweigh its cost implications. Are there possible gains associated with patenting in the Philippines? An econometric analysis shows that an increase in industry specific innovations (both foreign and domestic) has a positive impact on the technical efficiency of various manufacturing industries in the Philippines. In this regard, a patent policy that stimulates inventive activity would have some positive repercussions on the country's technological development. Moreover, the nature of inventive activity in Philippine industry suggests that the recognition and enforcement of utility or petty patents would be beneficial from the point of view of developing countries where innovation is generally adaptive. The positive implications of patent protection in Philippine industry is also reinforced in the analysis of the determinants of domestic innovation from which the relationship between domestic and international patenting could be deduced. Empirical estimates suggest that foreign patenting on balance increases derivative inventions in the chemical and engineering industries; however, in the case of light industries, the result indicates that foreign patents tend to inhibit derivative innovations. This implies that a regime of stronger patent protection would be more beneficial to the development of nontraditional, technology-intensive industries in the Philippines. Show more