Monique Newiak
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Working Papers

Imitation and Innovation Driven Development under Imperfect Intellectual Property Rights (with Christian Lorenczik), forthcoming: EER (PDF, 475kb, opens in new window)

Developing countries employ about two fifth of the world's researchers, originate one quarter of world expenditures on R&D, and their inventions are subject to imitation. Nevertheless, the previous literature focuses on North-South setups in which the South is restricted to imitation of northern inventions. To analyze the effects of IPR policies on developed and developing countries we extend this literature to allow not only for southern R&D and imitation of northern goods, but also imitation targeted at southern innovations. We find the effects of IPRs on R&D and welfare to be non-monotonic and dependent on R&D efficiency and an innovation threshold in the South. For sufficiently strong IPRs the South engages in R&D and stronger IPRs promote southern R&D, welfare, and a reduction in the North-South wage gap. Below the R&D threshold a strengthening of IPR protection fails to promote R&D and decreases welfare and wages. Stronger IPRs exclusively for southern firms can benefit both regions by shifting southern resources from the imitation of northern goods to original southern innovation.

The evidence from East-Asian economies in which lax Intellectual Property Rights (IPRs) enabled domestic firms to imitate foreign technologies and the rise of these countries to innovator economies suggests that imitation can be a source of knowledge transfer and thus can help to spur original R&D in emerging countries. At the same time, the empirical evidence suggests a positive relationship between growth and IPRs for countries with sufficiently large R&D sectors. In this paper, a North-South increasing variety model with endogenous southern research efficiency is developed to explain these observations. The model predicts a threshold level of southern R&D costs above which two equilibria with positive southern R&D activity can exist: In the imitation equilibrium, the southern innovation output and welfare are low, the wage gap between North and South is high, and higher IPRs are associated with lower research activity and long-run welfare. In the innovation equilibrium, the southern research efficiency, welfare and the product variety are high, and stronger IPRs are accompanied by more innovation and higher welfare in both regions. For countries which face research costs below the threshold, the imitation equilibrium ceases, and only the innovation equilibrium exists.

Intellectual Property Rights as Development Determinants (with Theo Eicher), forthcoming: CJE (PDF, 228kb, external link opens in new window)

Intellectual property rights (IPRs) have been identified as key drivers of economic performance in R&D based growth models, but their impact on development has not been fully explored in the empirical literature. We introduce IPRs to this literature, using Two-Stage Least Squares Bayesian Model Averaging (2SBMA) to address endogeneity and model uncertainty at the instrument and income stages. We show that IPRs exert similar effects as “Rule of Law,” which has long been heralded as a core development determinant in cross country regressions. Our results thus provide robust evidence that both dimensions of property rights, physical and intellectual, are crucial prerequisites to economic development. Most importantly, we document that IPRs which are simply written into law, but are unenforced, exert no effect on development. Instead, it is the level of enforced IPRs that causes development.

The Instability in the Monetary Policy Reaction Function and the Estimation of Monetary Policy Shocks (with Kundan Kishor, PDF, 448kb, external link opens in new window)

We extend Romer and Romer's (2004) analysis of the estimation and the effects of monetary policy shocks by (i) controlling for changes in the monetary policy reaction function and (ii) changes in the response of output and prices over time with an extended data set. The results suggest that the post 1979 responses of output and prices to a monetary policy shock are significantly different from what has been reported for the whole sample: While output and prices respond significantly and negatively if their response is estimated for the whole sample period (1969-2005), the response of output is insignificant for the period of 1979-2005, and the response of prices is much weaker. The analysis of the changes in the monetary policy conduct over time allows us to partly attribute the diminished price and output responses to a successful monetary policy which led to a less volatile economy during the great moderation.

Robust FDI determinants, parameter heterogeneity and IPRs (with Christian Lorenczik)

We examine determinants of Foreign Direct Investments (FDI) for developing and developed countries for a large dataset of bilateral FDI flows with over seventy regressors. We particularly focus on the analysis of different Intellectual Property Rights (IPRs) measures to explain the intensive and the extensive margin of FDI. Using Heckit Bayesian Model Averaging to address both model uncertainty and the selection problem particularly inherent in the FDI data, we show that (1) at the extensive margin, patent duration, patent enforcement and trademark protection are equally important for both groups of countries while (2) the probability of FDI into developing countries is considerably higher if they provide a larger patent coverage; (3) better patent enforcement and protection from loss of rights as well as looser trademark protection in the host economy increase FDI at the intensive margin.

Audit statements with Dollar Unit Sampling – a Comparison of Error Projection Methods Potsdam: University Monograph (in German: "Prüfungsurteile mit Dollar Unit Sampling")

Although Dollar Unit Sampling is a common tool used for the detection of errors in financial statements, there is no consensus about the appropriate method for the projection of error sizes and the calculation of error bounds based on this sampling technique. In this study, I examine the Stringer Bound, the Moment Bound and the Average Error Method with respect to their power to predict the accurateness of financial statements for different error rates and sizes, error distributions as well as over- and understatements of financial positions. I find that (1) the decision about the correctness of a financial statement varies strongly depending on which of the three methods are used, (2) the Stringer Bound is the most reliable projection method, but very imprecise for populations with small error rates, (3) none of the methods should be used for the projection of errors arising from an understatement of financial positions.

Research in Progress

What determines long-run growth in developed and developing countries?

Endogenous intellectual property rights, innovation, and learning from imitation