metadata: authors: 0: author: Tobochnik,Howard Jacob
1: author: Maskus,Keith E.
2: author: Ridley,William Clifton
count: World
docna: 0: docna: The Impacts of Intellectual Property–Related
            Preferential Trade Agreements on Bilateral Patent Applications
docty: Policy Research Working Paper
abstracts: cdata!: Intellectual property rights have become
            a central emphasis in the negotiation of
            &#x201c;deep&#x201d; preferential trade agreements
            containing provisions on regulatory environments besides
            trade policy. These provisions typically require member
            countries to implement heightened standards on various
            aspects of intellectual property rights, such as coverage
            and enforcement, that go beyond the baseline requirements of
            international intellectual property rights agreements such
            as the World Tarde Organization&#x2019;s Trade-Related
            Aspects of Intellectual Property Rights agreement. This
            study implements a structural gravity framework to
            investigate empirically the impacts of these agreements on
            bilateral international patenting, to quantify the effects
            of countries&#x2019; membership in intellectual
            property&#x2013;related preferential trade agreements on
            within-agreement patent applications at national patent
            offices, as well as extra&#x2013;preferential trade
            agreement patenting at member country destinations
            originating from non-member countries. The study further
            explores the heterogeneity of these effects as originating
            from the attributes of the agreements, such as whether the
            major partner in the agreement is the United States or the
            European Union/European Free Trade Association, and the
            presence of key &#x201c;Trade-Related Aspects of
            Intellectual Property Rights&#x2013;Plus&#x201d;
            provisions in the agreement texts. The findings suggest that
            intellectual property rights standards in preferential trade
            agreements tend to generate positive impacts on
            international patenting, and that the specific features of
            the agreements give rise to significant disparities in these
            impacts. Most intriguing is that those agreements involving
            multiple Trade-Related Aspects of Intellectual Property
            Rights&#x2013;Plus norms significantly increase
            patenting within members compared to patenting from outside
            those areas, while other types of intellectual property
            rights encourage more patenting from non-members.
display_title: The Impacts of Intellectual
            Property–Related Preferential Trade Agreements on Bilateral
            Patent Applications
listing_relative_url: /research/2023/02/34009816/impacts-intellectual-property–related-preferential-trade-agreements-bilateral-patent-applications
topicv3: Trade Agreements and Negotiations m1327641 779,Trade Policy and Investment Agreements
            m1504277 2575
publishtoextweb_dt: 2023-02-27T00:00:00Z
dois: 10.1596/1813-9450-10319
origu: Off of Sr VP Dev Econ/Chief Econ (DECVP)
author_keys: 0: author_key: 2197069
1: author_key: 431124
2: author_key: 1927331
model_extractions: Policy Research Working Paper 10320 The Impacts of Intellectual Property–Related Preferential Trade Agreements on Bilateral Patent Applications _Jacob Howard Keith E. Maskus William C. Ridley_ Development Research Group & Macroeconomics, Trade and Investment Global Practice February 2023
Policy Research Working Paper 10320

# **Abstract**

Intellectual property rights have become a central emphasis in the negotiation of “deep” preferential trade agreements containing provisions on regulatory environments besides trade policy. These provisions typically require member countries to implement heightened standards on various aspects of intellectual property rights, such as coverage and enforcement, that go beyond the baseline requirements of international intellectual property rights agreements such as the World Tarde Organization’s Trade-Related Aspects of Intellectual Property Rights agreement. This study implements a structural gravity framework to investigate empirically the impacts of these agreements on bilateral international patenting, to quantify the effects of countries’ membership in intellectual property–related preferential trade agreements on within-agreement patent applications at national patent offices, as well as extra–preferential trade agreement patenting at member country destinations originating from non-member countries. The study further explores the heterogeneity of these effects as originating from the attributes of the agreements, such as whether the major partner in the agreement is the United States or the European Union/European Free Trade Association, and the presence of key “Trade-Related Aspects of Intellectual Property Rights–Plus” provisions in the agreement texts. The findings suggest that intellectual property rights standards in preferential trade agreements tend to generate positive impacts on international patenting, and that the specific features of the agreements give rise to significant disparities in these impacts. Most intriguing is that those agreements involving multiple Trade-Related Aspects of Intellectual Property Rights–Plus norms significantly increase patenting within members compared to patenting from outside those areas, while other types of intellectual property rights encourage more patenting from non-members.

This paper is a product of the Development Research Group, Development Economics and the Macroeconomics, Trade and Investment Global Practice. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at jbhoward@mitre.org, keith.maskus@colorado.edu, and wridley@illinois.edu.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **The Impacts of Intellectual Property–Related Preferential Trade Agreements on Bilateral Patent Applications**

Jacob Howard MITRE Corporation<sup>*</sup> <u>jbhoward@mitre.org</u> Keith E. Maskus Department of Economics University of Colorado Boulder <u>keith.maskus@colorado.edu</u> William C. Ridley Department of Agricultural and Consumer Economics University of Illinois <u>wridley@illinois.edu</u>

* We are grateful to Yoto Yotov and other participants at the World Bank conference on deep trade agreements, June 24, 2022. for their insightful comments. The views, opinions and/or findings contained in this paper are those of the authors and The MITRE Corporation and should not be construed as an official US government position, policy, or decision, unless designated as such by other documentation. **Approved for Public Release; Distribution Unlimited. Public Release Case Number 22-2073.**
# **1. Introduction**

In recent decades, preferential trade agreements (PTAs) have evolved considerably from exercises in discriminatory tariff cutting to deeper and broader commitments to set minimum standards in a variety of regulatory areas, such as financial services, consumer data collection, competition policy, and investment regulations. Intellectual property rights (IPRs) play a central role in this regulatory convergence. Increasing numbers of PTAs embody extensive chapters covering detailed requirements regarding eligibility, scope of coverage, and enforcement of patents, designs, trademarks, copyrights, geographical indications (GIs), and other forms of protection.

Such agreements, which may be called IP-Related PTAs, or IPAs, typically build on minimum standards required in the TRIPS Agreement at the World Trade Organization. The TRIPS Agreement itself achieved a marked degree of convergence in rules covering IPRs across WTO members, raising standards in emerging and developing countries toward those in the developed economies that remain the largest producers of knowledge goods. However, the primary _demandeur_ countries in this context, the United States and the European Union, increasingly have demanded even stronger protection, in the form of so-called TRIPS-Plus requirements, in the PTAs they negotiate. For example, the United States has PTAs with Jordan, Peru, Australia, the Republic of Korea, and other countries that contain, compared to TRIPS, substantively tighter standards of patent protection for pharmaceuticals, new regulations for copyrights in digital goods, and expanded penalties for infringing IPRs. Such requirements pertain as well in the US-Mexico-Canada Agreement, which supplanted NAFTA. The 11country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) added further rules, including expanded protection of trade secrets. In 2014, Canada and the EU ratified their bilateral Comprehensive Economic and Trade Agreement, containing an extensive chapter on intellectual property with elevated standards.

A recent literature has emerged attempting to estimate the effects of such agreements on international trade in merchandise. It is evident that trade in goods could be sensitive to IP reforms in PTAs, for prior literature had established that TRIPS and expanded patent rights generally expanded trade, particularly in higher technology sectors (Ivus, 2010; Delgado, et al, 2013; Maskus and Yang, 2018). Regarding IPAs, Campi and Duenas (2019) estimated a gravity model and found evidence of a positive effect on bilateral trade five years after partner countries signed such agreements. Perhaps surprisingly, this result held equally for both high-intellectual1
property goods and low-intellectual property goods, raising questions about whether the effects of the trade aspects of these PTAs were sufficiently well controlled. Maskus and Ridley (2021) studied this question in an identification context, defining treatment trade agreements as those with elevated IP standards of various forms versus those without such rules. They found significantly positive impacts on the trade of members with third parties (those outside the IPAs), controlling for prior TRIPS membership, in biopharmaceuticals, medical devices, and other sectors that are highly reliant on intellectual property protection.

Unstudied to date is whether and how IPAs influence international knowledge flows, as measured by bilateral patent applications among member countries and between non-member and member countries. This is a remarkable omission in light of the evident intent of intellectualproperty chapters to reduce application costs and strengthen protection for patent holders. Our aim is to address this shortcoming by estimating the effects of IPA membership on bilateral applications, both at the country level and using various high-tech sectoral clusters. We make use of the World Bank’s extensive database covering regulatory provisions in comprehensive PTAs (Mattoo et al., 2020), employing various definitions of what constitutes TRIPS-Plus agreements.

Prior literature has emphasized the interrelationships between patent filings or grants and detailed trade flows. For example, countries that engage in unilateral patent reforms tend to find rapid increases in foreign patenting in their economies, relative to domestic patenting (Lerner, 2002). The essential reason is that foreign firms seek to sell products, whether exported or produced through local affiliates, in markets where their goods may be patented and those patents enforced. This correlation between patenting and trade has attracted significant attention in recent years, given the widespread availability of micro data on patents and trade. Brunel and Zylkin (2022), in an extensive panel-data study between 1974 and 2006, find that international patent grants have a positive impact on bilateral exports to the patent-destination country, though these effects varied across sectors. De Rassenfosse, et al. (2020) studied transactions data among French exporting firms between 2002 and 2011, concording patent categories with traded products. They found that owning patents generated a patent premium in exports to countries where patents were sought, which emerged primarily from greater export volumes rather than higher prices.

Again, neither strand of literature addresses the basic question of how IP-related PTAs influence bilateral patent application flows, which is our concern in this study. Rather than a 2
difference-in-differences approach, we opt for estimating a structural gravity model, as explained below, in which bilateral patent applications are related to joint membership in an IPA versus cases where the patent-destination country is in an IPA and the patent-source country is not. A particularly attractive feature of our structural gravity approach, in which we account for unilateral origin- and destination-specific time-varying factors through the use of highdimensional fixed effects, is that we are able to implicitly control for a wide assortment of confounding factors, such as countries’ adoption of and compliance with the TRIPS Agreement. Our approach seeks to distinguish between the impacts on patent flows of mutual IPA membership (within-agreement effects) and those on patent flows from outside IPAs and on patenting from IPA partners to non-member nations (extra-agreement effects).

# **2. Background**

In recent decades, PTAs have evolved greatly in subject matter and intent. Earlier agreements sought primarily to reduce tariffs and other formal barriers to trade, thereby increasing market access between member countries. Beginning in the 1990s they expanded in ambition and depth. The earliest major agreements with enhanced coverage were the North American Free Trade Agreement (NAFTA) and several bilateral accords between the European Free Trade Association (EFTA) and individual countries, such as Estonia, Latvia, and Mexico. This round of trade agreements included rules covering certain regulatory regimes, including IPRs. Not long after, the EU announced its “new trade policy,” increasingly emphasizing regulatory systems, including enhanced standards for patents, copyrights, GIs, and other IPRs in its PTAs with countries in Eastern Europe, the Middle East, Latin America, Canada, and Japan.

NAFTA was among the first multi-country PTAs to set minimum standards for nearly every aspect of IPRs as they existed then. Regarding patents, the agreement established certain TRIPS-Plus rules, including confidentiality for pharmaceutical clinical trials data and extensions in patent length to compensate for administrative delays in granting protection. These provisions, and others, were the foundation on which other TRIPS-Plus patent standards were erected in subsequent PTAs. NAFTA also mandated a minimum copyright length, expanded the types of literary and artistic works (including software) that must be protected, and recognized various neighboring rights. It further required automatic recognition of internationally well-known 3
trademarks, another TRIPS-Plus standard. Finally, the agreement set out minimum protection of geographical names through systems quite similar to those covering trademarks and collective marks. Trade agreements negotiated by the EU and EFTA in this era had similar requirements, though they emphasized somewhat different areas of concern, most prominently in establishing specific systems for recognizing and protecting GIs.

NAFTA was preceded by the formation of the European Economic Area (EEA) in 1994, linking three members of EFTA to the EU’s single-market program. Over time, an essential component of policy making in the EEA has been the adoption of stronger and more harmonized intellectual property standards throughout the region.

The subject matter coverage of PTAs sharply increased after 2000, with the United States and the EU demanding stronger and more comprehensive IPR provisions. Moreover, other new PTAs, not involving the United States or the EU, were negotiated by Japan, Australia, Korea, Mexico, and Chile, among others. These PTAs also included IPRs chapters, though typically with less rigorous standards in certain areas.

It is important to note that most of these IP-related PTAs are legally enforceable, as designated in the World Bank data. Specifically, the database ranks the legal enforceability (LE) of PTAs on a scale of 0, 1, or 2, with 0 essentially indicating that no enforcement language exists, 1 describing weak enforcement language (e.g., “should” or “may”), and 2 identifying those with clear commitment language (e.g., “shall” or “must”). We use this designation (LE = 2) as one means of selecting the treatment IPAs in the econometric analysis.

Figure 1 illustrates the considerable growth since 1990 in the number of IPAs in the World Bank data that feature strong enforceability.<sup>2</sup> The red lines indicate the number of agreements, and the blue lines show the number of countries in one or more of them.<sup>3</sup> As depicted in panel (a), the number of IPAs rose from fewer than 20 in 2000 to 100 in 2015, while the number of countries involved now exceeds 100. Thus, currently around two-thirds of WTO

> 2 Appendix Table A1 gives the full list of IP-related PTAs and the year in which each agreement entered into force. 3 An important related source of information is the DESTA database described in Dür et al. (2014). It defines IPAs as agreements with an IPRs chapter, regardless of how comprehensive or rigorous.

4
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designation. Though agreements of this type only began to proliferate from around the mid2000s onward, the number of PTAs possessing these standards continues to increase steadily. Notably (and as seen explicitly in Appendix Table A1), these BTRIPS agreements have increasingly been undertaken by countries besides the United States and EU/EFTA, such as Japan, Korea, and Australia, a fact that points to the increasing centrality of IPRs in these countries’ policy emphases.

A second important point is that IPAs, while increasing the scope of protection over time, do not treat all forms of intellectual property equally. They also vary in depth because they incorporate different numbers of specific IPRs provisions and their enforceability. Countries entering PTAs may have different socioeconomic interests in intellectual property protection and related regulatory policies (Maskus, 2012a). For example, the United States attaches considerable importance to assuring copyright protection for its own nationals’ rights held in foreign markets and negotiates its international agreements accordingly. The EU and EFTA do so also but prioritize strong systems of registering and enforcing GIs especially. GIs protect the rights to use place names in wines, spirits, and other consumer products, where production locality matters for the quality and character of such goods. Japan and Korea have focused on extending patent rights, while Australia traditionally has preferred weaker copyright rules. Developing countries often seek to sustain access to international technologies and information, perhaps through more limited patent standards or weaker trade secrets protection. Indeed, it may seem surprising that emerging and developing economies increasingly have agreed to strong IPRs chapters in PTAs. Here, we simply note that different countries seek to emphasize specific aspects of IPRs in negotiating and joining IPAs.

Rather than describe fully the many differences in strategies and provisions that can be found in the World Bank database, we summarize them in Table 1. The database identifies 130 detailed IPRs provisions, broken into 16 broad categories. These provisions are simply listed as either 0 (absent in the PTA) or 1 (present). In Panel A we list eight categories that seem relevant for studying potential impacts on both trade and innovation.<sup>4</sup> For example, there are 15 international treaties or conventions covering intellectual property that members of IPAs might

> 4 The unlisted categories focus on procedural questions (such as transparency and cooperation mechanisms), do not strengthen existing IPRs (such as incorporation of existing IPRs treaties or recognition of the importance of biodiversity and traditional knowledge), or focus on non-trade issues.

6
be required to ratify. The United States often demands such rules in negotiating its IPAs, with the average agreement listing 11.5 conventions, compared to 3.3 for the EU/EFTA IPAs and 2 for the others. Clearly, IPAs involving the United States embed considerably more provisions within nearly all categories than do the others. This difference stands out particularly in trademarks, patents, test data protection, copyrights, and enforcement.

In Panel B we consider a subset of categories and, within those, list the number of provisions that are widely considered to be BTRIPS (i.e., TRIPS-Plus).<sup>5</sup> These provisions were selected because they feature prominently in international debates over elevated IPRs norms. By this somewhat ad hoc accounting, there are five BTRIPS provisions in patents, including such items as patents for new uses of known products, patent-term adjustments, and patent linkage. Similarly, there are five standards in test data protection, including confidentiality for trial data in pharmaceuticals and biologics. The largest group is in enforcement, reflecting the fact that TRIPS essentially committed countries to a best-efforts approach, while some recent IPAs require such policies as injunctive relief, destruction of infringing goods, criminal sanctions for willful infringement of intellectual property, and criminalization for misappropriating trade secrets.

This review shows that the United States is easily the top _demandeur_ of these BTRIPS conditions, especially in data protection, copyrights, and enforcement. The EU/EFTA IPAs are considerably less prescriptive, though they are comparatively more focused on GIs and enforcement. The rules on GIs, patents, data protection, and copyrights are far less prevalent in the IPAs involving countries other than the United States and EU/EFTA, though there are exceptions as seen in the “max” column. The conclusion we draw is that, among the comparatively few IPAs featuring the United States as a partner, the adoption of BTRIPS standards is far more common than elsewhere.

> 5 The list of these BTRIPS standards, broken into “core” standards and “broad” provisions, is given in Appendix Table A2.

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**Table 1: Summary of IPRs Provisions in Legally Enforceable IP-Related PTAs**

|**Panel A: all IPR provisions as of 2015**|**US**<br>|**LE IPAs**<br>|**(13)**<br>|**EU/EFT**<br>|**A LE IP**<br>|**As (45)**<br>|**Other**<br>|**LE IPA**<br>|**s (42)**<br>|
|---|---|---|---|---|---|---|---|---|---|
||Avg|Min|Max|Avg|Min|Max|Avg|Min|Max|
|Accession/Ratification (n = 15)|11.5|2|14|3.3|0|13|2.0|0|13|
|National Treatment (n = 2)|2.0|2|2|0.9|0|2|0.6|0|2|
|Trademarks (n = 15)|9.4|4|15|1.6|0|7|1.5|0|11|
|Geographical Indications (n = 7)|2.6|0|4|2.0|0|7|0.7|0|3|
|Patents (n = 14)|4.8|1|13|1.0|0|3|0.7|0|10|
|Data Protection (n = 5)|2.8|0|5|0.9|0|2|0.1|0|5|
|Copyrights (n = 14)|10.5|4|14|2.0|0|12|1.9|0|12|
|Enforcement (n = 23)|17.2|4|20|7.6|0|17|4.8|0|17|
||**US**|**LE IPAs**|**(13)**|**EU/EFT**|**A LE IP**|**As (45)**|**Other**|**LE IPA**|**s (42)**|
|**Panel B: BTRIPS provisions as of 2015**|Avg|Min|Max|Avg|Min|Max|Avg|Min|Max|
|Trademarks (n = 4)|2.3|2|4|0.2|0|2|0.4|0|4|
|Geographical Indications (n = 3)|0.9|0|1|0.8|0|3|0.3|0|2|
|Patents (n = 5)|1.2|0|4|0.4|0|1|0.2|0|3|
|Data Protection (n = 5)|2.8|0|5|0.9|0|2|0.1|0|5|
|Copyrights (n = 6)|5.6|1|6|1.0|0|6|0.8|0|6|
|Enforcement (n = 10)|7.1|1|9|3.1|0|7|2.0|0|7|

8
# **3. Patent Data**

Our primary research objective is to estimate how the formation of IPAs affects bilateral flows of patent applications, from origin country to destination country across all potential patent-country pairs. In this context, we distinguish among the effects on within-IPA members, the impacts on patenting from member countries to nations outside IPAs, and the effects on flows from origin countries that do not join specific IPAs to countries within them. Our patent data come from the PATSTAT database organized by the European Patent Office (EPO). The database lists the origin nation, from which the patent is originally filed, and the destination nation, which is the patent authority in which registration is desired, as well as the filing date for each application. Because our interest lies in assessing where patents are filed, we include each destination listed in a patent family as a separate application. Similarly, for patents filed through the Patent Cooperation Treaty (PCT) or the EPO, both of which list countries in which protection may be sought during a grace period, we include only those that reached an ultimate national authority. Many applications list only a filing authority, which indicates that the origin is the same country, implying an application that does not cross an international border. Though our focus lies primarily on measuring international patenting effects, we include domestic applications in our empirical setting in order to account for within-country patenting as a reference category in the gravity-model analysis that follows.<sup>6</sup> Our analysis extends over the period 1995 to 2015, during which multiple IPAs were established. We cut off the end date in order to avoid truncation of patents in recent years, which exists due to lags in application filings. Our data covers patent applications originating from 187 origin countries that are ultimately filed in 82 different destination countries. The fact that there are fewer destination countries than origins in our data is a result of the set of patent offices covered in the PATSTAT data set.<sup>7</sup> Figure 2 depicts changes in average patent shares and volumes in the years before and after the entry into force of three types of IPAs and another simple form of policy protection. Our definition of which trade agreements constitute IPAs is as follows. First, does an agreement include at least three of what we call “core TRIPS-Plus requirements,” which are key elements of

> 6 In the trade-gravity context, the inclusion of intranational trade volumes has been shown to be an important consideration for recovering accurate estimates of trade-policy impacts (Yotov, 2022). For instance, Larch et al. (2018) find that the inclusion of intranational trade volumes in the empirical gravity setting leads to substantially different estimates on the impact of countries’ accession to the Eurozone relative to specifications based solely on international trade flows.

> 7 Details on extracting these data are explained in Appendix B.

9
IPRs protection that go beyond TRIPS standards? Second, is one of the parties the United States, the European Union, or the European Free Trade Association (EFTA), which demand high standards? Third, a weaker definition includes other PTAs that incorporate some IPRs provisions that the World Bank considers legally enforceable under WTO rules. Finally, for comparison purposes we include patent trends in PTAs that have at least one clause protecting ownership of investment assets, regardless of whether they are IPAs.

To organize the calculations, we consider each patent-destination country and whether it is a member of one or more IPAs. We then compute the number and shares of bilateral patent flows arriving from source countries that are in those IPAs (member to member flows) and those coming from nations that are not members of a particular IPA to the within-IPA members that are not in the High-Income designation.<sup>8</sup> In the calculation of the denominator of these shares, we omit domestic patent applications as part of total patents filed in the destination country. Akin to an event study setting, “time to agreement” indicates the number of years before or after the year in which a particular agreement enters into force.

All four agreement types, as indicated in the first and third rows of the charts, demonstrate that cross-border patenting among member nations (“member to member”) rose prior to agreement implementation (year 0) and continued to rise sharply after, both in terms of volumes and shares.<sup>9</sup> This was true also, however, of PTAs with investment protection, suggesting the need to control for that factor. In contrast, patent flows from non-members to members who are not high-income countries, where IPAs typically require the largest policy changes, rose continuously in absolute terms but, except for a small rise immediately after IPA implementation, did not show any patterns in their shares of patenting originating from inside agreements.<sup>10</sup>

> 8 As will be explained in the next section, the identification of impacts of IPAs on non-member to member flows, and the reverse flows, requires breaking down countries into high-income and non-high-income categories. For the purposes of Figure 2 we are interested in comparing internal patenting versus patenting from outside IPAs. 9 The slight reductions in the numbers of patents filed in the last year of some of the charts is likely due to residual truncation of patents associated with lags in processing applications.

> 10 Similar results occurred in comparisons of patent flows in the IP-intensive industry clusters (results not shown).

10
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Table 2 presents summary statistics on total patent flows and patent flows for each highIP cluster, using a concordance between the technology codes in the International Patent Classification (IPC) and sectors in the North American Industrial Classification System (NAICS) to map PATSTAT data to broader industry groupings.<sup>11</sup> The summary statistics are computed over both the full sample (including zero flows) and the sample with only positive flows. Note that because the patent-industry concordance consists of weights less than unity, some patent flows in the positive-only sample appear close to zero. This also explains patent flows that are less than one.

The figures in Table 2 show that the clusters with the smallest mean positive cross-border patent flows are biopharmaceuticals and medical devices. In contrast, the clusters with the largest average flows, as regards both zeros and non-zeros, are information and communication technology and “Other.” Despite that, the cluster with the smallest number of positive international applications is the ICT category.

Table 3 lists summary statistics for total patent flows among members and among countries who are not members of IPA agreements, again for all flows including zeros and for positive observations. These figures are organized with a different logic for comparison purposes. The “between members” data demonstrate flows pre- and post-IPA implementation among all country pairs in which both are in the agreement. The “non-members” data depict flows between all country pairs that never sign an IPA with each other, before and after implementation of an agreement between the destination country and any third party or parties. The rationale for this comparison is that it allows us to discern whether this change in the destination’s status correlates with changes in extra-agreement patent registrations. That is, does this evident change in destination _j’s_ IPRs regime influence applications from country _i_ within that pair? The data indicate that, following the establishment of IPAs containing three or more core BTRIPS provisions, the average volume of patent applications between countries increases for member-to-member pairs and non-member-to-member pairs. This pattern holds also for PTAs classified in the World Bank’s database as featuring any legally enforceable IPR provision. Notably, this relationship is reversed for IPAs in which the United States or EU/EFTA is a partner.

> 11 The concordance is in Lybbert and Zolas (2014).

12
|**Table 2: Summary Statist**|**ics of Inter**<br>|**national Pat**<br>|**ent Flows by **<br>|**High-IP Clus**<br>|**ter**<br>|
|---|---|---|---|---|---|
||**Min.**|**Mean**|**Std. dev.**|**Max**|**Obs.**|
|**Total Patents**||||||
|Including Zeros|0.00|55.08|2,521.43|563,592.80|322,014|
|Positive Flows Only|0.01|349.08|6,339.55|563,592.80|50,810|
|**Analytical Instruments (AI)**||||||
|Including Zeros|0.00|6.90|336.34|62,740.98|322,014|
|Positive Flows Only|< 0.01|65.13|1,031.84|62,740.98|34,094|
|**Biopharmaceuticals (BIO)**||||||
|Including Zeros|0.00|0.19|6.67|1,914.34|322,014|
|Positive Flows Only|< 0.01|1.90|21.12|1,914.34|31,839|
|**Chemicals (CHEM)**||||||
|Including Zeros|0.00|2.53|98.98|25,112.73|322,014|
|Positive Flows Only|< 0.01|22.20|292.66|25,112.73|36,643|
|**Information and Communicati**<br>|**ons Techno**<br>|**logy (ICT)**<br>||||
|Including Zeros|0.00|15.95|745.95|135,309.85|322,014|
|Positive Flows Only|< 0.01|161.79|2,370.51|135,309.85|31,754|
|**Medical Devices (MED)**||||||
|Including Zeros|0.00|1.43|46.20|11,019.49|322,014|
|Positive Flows Only|< 0.01|13.85|143.06|11,019.49|33,304|
|**Production Technology (PT)**||||||
|Including Zeros|0.00|4.98|257.73|67,061.03|322,014|
|Positive Flows Only|< 0.01|41.86|746.19|67,061.03|38,311|
|**Other**||||||
|Including Zeros|0.00|13.47|592.92|114,855.77|322014|
|Positive Flows Only|< 0.01|91.97|1,547.02|114,855.77|47,161|

_Notes_ : Data reflects bilateral patent applications data for the years 1995–2015. Categories reflect groupings of NAICS industry that we define based on a US Department of Commerce classification of sectors with above-mean patenting intensity (patents per industry employee).

13
**Table 3: Summary Statistics by IPA**

||**Min.**|**Mean**<br>**Std. dev.**|**Max**|**N**|
|---|---|---|---|---|
|||**Three or more BTRIPS pro**<br>Flows Between Member<br> <br>|**visions IPAs**<br>s (Prior)<br>||
|Including Zeros|0.00|106.09<br>1,132.10|27,240.70|4,328|
|Positive Flows Only|0.03|368.81<br>2,088.31|27,240.70|1,245|
|||Flows Between Membe|rs (Post)||
|Including Zeros|0.00|256.74<br>1,555.41|18,687.55|859|
|Positive Flows Only|0.02|586.54<br>2,311.14|18,687.55|376|
|||Flows Between Non-M|embers||
|Including Zeros|0.00|43.03<br>2,398.93|563,592.79|274,936|
|Positive Flows Only|0.01|291.16<br>6,234.71|563,592.79|40,629|
|||Flows Between Non-Membe|rs after j joins||
|Including Zeros|0.00|124.79<br>3,303.33|195,802.61|41,891|
|Positive Flows Only|0.01|610.69<br>7,287.61|195,802.61|8,560|
|||<br>**WTO-X IPR LE I**<br>Flows Between Member|<br>**PAs**<br>s (Prior)||
|Including Zeros|0.00|28.55<br>431.29|27,240.70|33,063|
|Positive Flows Only|0.01|104.73<br>821.24|27,240.70|9,013|
|||Flows Between Membe|rs (Post)||
|Including Zeros|0.00|42.35<br>483.69|18,687.55|25,590|
|Positive Flows Only|0.02|111.30<br>779.29|18,687.55|9,736|
|||Flows Between Non-M|embers||
|Including Zeros|0.00|40.09<br>2,206.00|233,245.36|115,453|
|Positive Flows Only|0.02|404.13<br>6,993.81|233,245.36|11,453|
|||Flows Between Non-Membe|rs after j joins||
|Including Zeros|0.00|74.92<br>3,155.93|563,592.79|147,908|
|Positive Flows Only|0.01|537.68<br>8,440.28|563,592.79|20,608|
|||**US/EU/EFTA**|||
|||Flows Between Member|s (Prior)||
|Including Zeros|0.00|32.24<br>494.01|27,240.70|30,985|
|Positive Flows Only|0.01|120.68<br>950.25|27,240.70|8,277|
|||Flows Between Membe|<br>rs (Post)||
|Including Zeros|0.00|23.47<br>212.09|9,134.89|24,203|
|Positive Flows Only|002|6315<br>34428|913489|8996|
||.|.<br>.<br>Flows Between Non-M|,.<br>embers|,|
|Including Zeros|0.00|70.11<br>3,351.92|563,592.79|159,680|
|Positive Flows Only|0.01|540.72<br>9,295.50|563,592.79|20,703|
|||Flows Between Non-Membe|rs after j joins||
|Including Zeros|0.00|46.43<br>1,510.42|113,832.38|107,146|
|Positive Flows Only|0.01|387.65<br>4,349.17|113,832.38|12,834|

14
# **4. Econometric Approach and Results**

To analyze the impacts of countries’ IPA membership on international patenting activity, we implement a structural gravity model of bilateral flows of patent applications analogous to the widely used structural gravity of bilateral trade.<sup>12</sup> We specify an estimating equation given by Patentsijt = exp[β0Intraijt + β1Extra1ijt + β2Extra2ijt + β3Extra3ijt + β4ANYIPRijt + β5ANYINVijt + γit + δjt + ηij + εijt] (1) where Patentsijt is the count of the total number of patent applications originating from source country i filed at the national patent office of destination country j in year t. Intraijt is an indicator variable equaling one when both _i_ and _j_ share mutual membership in one of the three types of IPAs as defined above (legally enforceable IPAs, US, EU, and EFTA-associated IPAs, and BTRIPS/TRIPS-Plus agreements), and zero otherwise. Coefficient β1, therefore, captures the average effect of accession to an IPA on within-agreement patenting between agreement member countries.

Following are three indicator variables identifying the membership status and income group of countries _i_ and _j_ . For the latter purpose we use the World Bank’s designation of countries as either high-income (HI) or not high-income (NHI), where the latter group includes all countries in our sample designated low-income (LI), lower-middle-income (LMI) or uppermiddle-income (UMI).<sup>13</sup> Specifically, Extra1ijt takes the value of one when both countries are HI nations but only one of them is a member of an IPA, and zero otherwise. Next, Extra2ijt captures cases where the destination is NHI and part of an IPA but the source country is outside the IPA but can be any income level. Finally, Extra3ijt refers to observations in which the origin is a NHI country inside and IPA but the origin is any country outside the IPA. Thus, β1

> 12 The gravity model has been widely employed to analyze many types of bilateral flows, including trade, investment, migration, and knowledge and innovation, among others. Recently, a small but growing literature has adapted the gravity equation to assess various determinants of bilateral patenting. See, for example, Picci (2010), Scherngell and Hu (2011) on bilateral patenting in international and intranational settings, or Montobbio and Sterzi (2013) for related work on a gravity model of international patent collaborations. Most closely related to our analysis is that of Coleman (2022), who conceptualizes a theoretical basis for a gravity equation of international patenting for the purpose of measuring the impacts on patenting of countries’ accession to international IP conventions, such as the Patent Cooperation Treaty (PCT) or the WTO TRIPS Agreement.

> 13 For purposes of identification in the gravity model, it is necessary to include this income-based breakdown to estimate impacts on both directional flows with non-members. See Beverelli et al. (2018) for discussion of this point in the trade-gravity context. We also estimate our specifications accounting for heterogeneity in countries’ R&D intensity (national rates of R&D spending over GDP) to divide countries into high-R&D and non-high-R&D categories. This approach yielded no qualitative differences from the baseline results. Because the R&D data are less complete than data for our other variables, we report the results only for the income-based regressions.

15
reflects the change in bilateral patenting flows between high-income members of one of the different IPA types and non-member HI countries. Coefficient β2 reflects changes in bilateral filings originating from non-member countries and registered in NHI members of the various IPA types. Coefficient β3 has an analogous interpretation.

We also include two controls for other bilateral policy variables that may affect patenting. First, ANYIPRijt is an indicator variable equal to one if countries _i_ and _j_ are in an agreement that has at least one active provision regarding intellectual property rights that the World Bank does not describe as legally enforceable, and zero otherwise. This variable should control for the possibility that it is the existence of an IPA itself, rather than its legal strength, that could influence cross-border patenting. Second, ANYINVijt is a dummy variable capturing whether country pairs share a bilateral investment treaty (BIT) or some other form of international investment agreement (IIA). The rules in such agreements often explicitly include IPRs as protectable investments and they may implicitly encourage patenting through their impacts on foreign direct investment (Maskus, 2012b).

The other components of equation (1) include the fixed effects γit, δjt and ηij, which, respectively, control for origin-year, destination-year, and bilateral-pair-specific factors. The first two terms account for all time-varying (as well as time-invariant) features of origin and destination countries. These features include, for example, attributes such as countries’ innovative and R&D capacity, as well as compliance with relevant non-discriminatory policies and international treaties such as the TRIPS agreement or the PCT. These effects also account for the origin and destination size terms that characterize the structural gravity equation (corresponding in trade-based gravity to the levels of the origin country’s output and the destination country’s expenditures). Perhaps most importantly, these elements fully account for the outward and inward multilateral resistance terms described in Anderson and van Wincoop (2003). Controlling for these terms is important for obtaining accurate estimates of policy impacts on patent flows. The country-pair effects ηij are also important because they capture the role of all long-run bilateral factors that influence the volume of patenting between pairs of countries. Such factors encompass traditional impediments such as geographical distance or linguistic and cultural similarities, as well as all other time-invariant, pair-specific frictions in bilateral patenting flows (Egger and Nigai, 2015). This term also helps mitigate potential 16
endogeneity in the implementation of bilateral trade and regulatory policy (Trefler, 1993; Baier and Bergstrand, 2007).

Finally, εijt is a mean-zero error term, which in our estimation we calculate with twoway clustering within origin and destination countries, respectively, in order to flexibly account for correlation in the error terms along these dimensions. In line with what has become standard practice in gravity estimation, we estimate equation (1) using the Poisson pseudo-maximum likelihood (PPML) estimator following Santos Silva and Tenreyro (2006, 2011). PPML has the dual advantages relative to log-linearized gravity models of allowing for the inclusion of zero flows and yielding unbiased estimates in the presence of heteroskedasticity.

While equation (1) captures the impacts of IPA membership on total bilateral patent applications, the nature of many of the IPRs provisions of IPAs—for example, test data confidentiality provisions relating to pharmaceutical inventions—is often highly sector-specific. In addition, there are conceivably significant differences in the sensitivity of different broad categories of innovation to the changes in IPRs standards implemented under the provisions of IPAs. We therefore extend equation (1) to accommodate sector-level heterogeneity in the effects of IPA membership by incorporating interaction effects with the Intra and Extra IPA policy variables: Here, _Sectors_ represents a comprehensive set of indicator variables equal to one for observations corresponding to patent applications in one of the seven high-IP sectoral clusters defined previously, as well as a “low-IP” sector reflecting comparatively non-patent-intensive activities.<sup>14</sup> Again, these high-IP sectors include analytical instruments (AI), biopharmaceuticals (BIO), chemicals (CHEM), information and communications technology (ICT), medical devices (MED), production technology (PT), and a residual category (Other) reflecting IP-sensitive industries not belonging to any of the above groupings. We also interact these sectoral indicator variables with the three _Extra_ dummies capturing forms of patent flows into and out of IPAs. For each sectoral cluster we also control for any active IPA not considered legally enforceable by the World Bank, or any active investment agreement between countries _i_ and _j_ . Because regression

> 14 See Appendix Table B2 for the list of industries comprising the low-IP cluster.

17
equation (2) reflects patent flows at the sector level, we also extend our specification to incorporate origin-year-sector, destination-year-sector, and country-pair-sector fixed effects (γist δjst, and ηijs, respectively).

Again, we estimate equations (1) and (2) for different definitions of IPAs. It seems likely that, to have distinctive impacts on international patenting, IPAs should be particularly strong in their expectations and enforceability. Thus, we entertain three designations of potentially impactful IPAs. First are those agreements with IPRs norms that the World Bank considers to be legally enforceable, which we label WTO LE2 in the tables below. Second are those in which the United States or EU/EFTA are partners, labeled EU/US/EFTA, reflecting the strong provisions those partners seek in negotiating them. Third are those containing at least three of the core TRIPS-Plus provisions listed in Appendix Table A2. We label these CORETRIPS3.

# **4a. Total Bilateral Patents**

Table 4 presents the regression results for equation (1), involving total patent flows between source and destination nations. The columns report regressions with different assignments of countries into HI and NHI. In the first column this split is based on annual World Bank designations of each country through the sample. We also are concerned that variation in income status, rather than IPA membership, might be driving some of our results in the first column. To address this concern, we estimate equation (1) using two additional income-group definitions that are consistent across the sample. In the second and third columns it is based, respectively, on the earliest and latest years in the sample in which a country receives a World Bank designation.<sup>15</sup> This breakdown yields highly similar results across columns in each panel.

In the regressions a distinctive pattern emerges. The first two IPA types have insignificant coefficients on bilateral application flows between agreement members. However, joint membership in a CORETRIPS3 agreement significantly expands bilateral patenting, with an estimated impact of around 26.7%.<sup>16</sup> Thus, the broader set of IPAs focused on core TRIPSPlus requirements strongly encourage more intra-agreement patenting. This suggests that such

> 15 In some years World Bank designations are missing for some countries. Most commonly, some countries do not have income classifications recorded in 1995 or 2015.

> 16 The coefficient estimates on the policy indicator variables can be interpreted in percentage change terms based on the calculation (exp(β ) – 1) × 100%.

18
elevated and enforceable standards adopted in IPAs attract technology transfer through withinagreement patent flows.

Next, both the WTO LE2 and US/EU/EFTA IPAs strongly and positively increase applications between HI members and HI non-members ( _Extra1)_ . Where the member in the pair belongs to a WTO LE2 agreement the coefficients imply an increase in such flows ranging from 12.2% to 13.0%. This estimate is consistently 14.7% where the member is in a US/EU/EFTA IPA. In contrast, this form of external flow is not affected by membership in CORETRIPS3 agreements. However, both the US/EU/EFTA and CORETRIPS3 accords strongly raise patent flows from outside to NHI countries inside ( _Extra2)_ , with estimates ranging between 25.1% and 43.0% in the first type and between 28.7% and 42.8% in the second type. Perhaps surprisingly, the model estimates negative impacts on patent filings from NHI members to non-members in these two IP types. These findings suggest that NHI countries within IPAs become more attractive locations to patent, while inventors in such nations may focus their applications more on destinations within the agreements.

Finally, the regressions generate the interesting finding that other policies matter for patent flows regarding IPAs. For example, in both Panel A and Panel B there are significantly positive coefficients on the variable capturing whether country pairs share some kind of bilateral investment agreement. Thus, regardless of whether countries share membership in an IPA their bilateral patenting is positively related with investment protection rules, a finding that deserves further study. Furthermore, in both US/EU/EFTA and CORETRIPS3 IPAs the existence of at least one non-enforceable IPR provision also encourages bilateral patenting.

# **4b. High-IP Clusters**

The results from estimating equation (2) for the three IPA definitions are in Tables 5A through 5C, corresponding to the three IPA definitions. Each table presents results from a single regression, with the various cluster-specific effects of the IPA policy variables depicted in the columns. Similar patterns emerge for the IP-sensitive clusters as for total applications. Specifically, the WTO-enforceable agreements (Table 5A) and those with US or European partners (Table 5B) show relatively little effect on within-IPA patent flows. Next, we again find significantly positive coefficients on the indicator for within-agreement bilateral membership in CORETRIPS3 IPAs (Table 5C). This finding holds for BIO, CHEM, ICT, and MED, which are all areas in which TRIPS-Plus provisions in the patent realm are particularly relevant. Notably, it 19
holds as well for the low-IP and Other high-IP groups, suggesting there are broad-based effects of these assertive IPAs on cross-border patent applications among member nations.

Similar variations also arise regarding patent flows into or out of IPAs. For example, there are significantly positive impacts in the first two IPA types on Extra1 patent filings between HI members and HI non-members in certain sectors, including BIO, CHEM, MED, and ICT. There is also a positive and significant coefficient in the low-IP group in Table 5A, suggesting that even in these products membership in IPAs may encourage foreign filings outside the agreement. CORETRIPS3 agreements display little influence in this context, except in ICT.

Next, all three IPA types encourage more Extra2 patent applications from outside nations to NHI countries inside the agreement. This holds in BIO, CHEM, and MED in both the WTO LE2 and US/EU/EFTA agreements. The effect is seen most acutely in the CORETRIPS3 cases, where the coefficients are significantly positive across the board and highest in the BIO, CHEM, MED, ICT, and Other sectors. The coefficients suggest increases in external-to-internal patent flows ranging between 29.6% in analytical instruments and 72.5% in medical devices. This result is a striking indication that these TRIPS-Plus IPAs markedly raise the attractiveness of emerging and developing countries joining them as locations for patent applications and the associated technology transfer.

In contrast, there is evidence in both Tables 5B and 5C of negative impacts on Extra3 patents from NHI members to countries outside these IPAs. While this result requires further investigation, the initial suggestion again is that IPAs may shift the attention of inventive firms in such countries toward patenting in partner counties, including domestically.

20
**Table 4: Impacts of IPAs on Bilateral Patent Filings**

|Income Used for HI vs NHI:|Varies byYear|Earliest|Latest|
|---|---|---|---|
|_Panel A: WTO LE2_||||
|Intra (member to member)|-0.229|-0.244|-0.241|
||(0.182)|(0.187)|(0.187)|
|Extra1 (between HI member and|0.122**|0.116**|0.115**|
|HI non-member)|(0.051)|(0.052)|(0.051)|
|Extra2 (NHI destination in IPA from all|0.188*|0.145|0.191|
|non-member sources)|(0.104)|(0.147)|(0.176)|
|Extra3 (NHI source in IPA to all non-|0.024|0.180|0.210|
|member destinations)|(0.176)|(0.294)|(0.348)|
|Any IPR provision not meeting WTO LE2|0.012|0.004|0.007|
||(0.061)|(0.060)|(0.060)|
|Any bilateral investment agreement|<br>0.513***|<br>0.523***|<br>0.520***|
|(BIT or other IIA)|(0.167)|(0.171)|(0.171)|
|_Panel B: US/EU/EFTA_||||
|Intra (member to member)|-0.014|-0.014|-0.010|
||(0.128)|(0.130)|(0.128)|
|Extra1 (between HI member and|0.137*|0.137*|0.137*|
|HI non-member)|(0.070)|(0.074)|(0.070)|
|Extra2 (NHI destination in IPA from all|0.224***|0.235**|0.358***|
|non-member sources)|(0.065)|(0.104)|(0.122)|
|Extra3 (NHI source in IPA to all non-|-0.364**|-0.252|-0.630**|
|member destinations)|(0.159)|(0.340)|(0.310)|
|Any IPR provision not meeting WTO LE2|0.187*|0.187*|0.191*|
||(0.101)|(0.103)|(0.101)|
|Any bilateral investment agreement|0.228**|0.228**|0.229**|
|(BIT or other IIA)|(0.090)|(0.091)|(0.089)|
|_Panel C: CORETRIPS3_||||
|Intra (member to member)|0.235***|0.238***|0.237***|
||(0.076)|(0.074)|(0.074)|
|Extra1 (between HI member and|0.072|0.071|0.072|
|HI non-member)|(0.098)|(0.098)|(0.098)|
|Extra2 (NHI destination in IPA from all|0.252**|0.346***|0.332***|
|non-member sources)|(0.123)|(0.115)|(0.121)|
|Extra3 (NHI source in IPA to all non-|-0.371*|-0.290|-0.575**|
|member destinations)|(0.198)|(0.194)|(0.224)|
|Any IPR provision not meeting WTO LE2|0.319**|0.319**|0.319**|
||(0.157)|(0.156)|(0.157)|
|Any bilateral investment agreement|0.053|0.051|0.053|
|<br>(BIT or other IIA)|(0.053)|(0.053)|(0.053)|
|Observations|104,081|104,081|104,081|
|Origin-year FEs|Y|Y|Y|
|<br>Dest-year FEs|Y|Y|Y|
|Pair FEs|Y|Y|Y|
|Pseudo R2|0.997|0.997|0.997|

_Notes_ : Country incomes are based on World Bank income group classifications. Column 1 groups countries by their annual classification. Column 2 groups countries by their earliest observed income classification within our sample and Column 3 groups them by their latest observed income classification. Two-way clustered standard errors are in parentheses. *** p<0.01, ** p<0.05, * p<0.1 21
Finally, it is notable that the regressions involving WTO LE2 and US/EU/EFTA IPAs feature significantly positive coefficients for the variable indicating that country pairs have a bilateral investment agreement of some kind, for virtually all industry clusters. Clearly, investment protection matters, even within the context of these agreements. However, that significance disappears in Table 5C for CORETRIPS3 IPAs. This outcome suggests that the strongly protective IPRs rules in such agreements somehow substitute for bilateral investment protection, an intriguing finding deserving further study.

Overall, the finding that various IPA types have qualitatively different impacts on intraagreement patenting versus applications from and to locations outside the agreement is novel. It deserves further scrutiny to demonstrate its robustness and to shed light on the sources of this difference. Pending such investment, we simply speculate here on what may drive the results. Considering the list of agreements in our three IPA definitions, which are listed in detail in Appendix Table A1, we find that the 23 CORETRIPS3 agreements are a subset of the union of the 52 US/EU/EFTA agreements and the 41 other WTO-enforceable agreements. However, the CORETRIPS3 IPAs encompass most of the US IPAs, relatively few of the EU/EFTA accords, and only three others, including agreements between Japan-Malaysia, Japan-Korea, and KoreaAustralia.

In this context, there are, as suggested earlier, qualitative differences between the USbrokered and EU/EFTA-brokered IPAs. At least since 2004 the United States has routinely incorporated multiple TRIPS-Plus provisions in its trade agreements. The primary exception is the US-CAFTA-Dominican Republic pact. That is a multilateral accord with a significant number of small developing countries having relatively little innovative capacity and receiving few patent applications from abroad. Many of the other US-partnered agreements are with developed countries or emerging nations with significant production and trade capacity. For its part, the EU/EFTA agreements that are not in the CORETRIPS3 category largely encompass relatively shallow bilateral accords with developing economies, particularly in Eastern and Central Europe. Finally, the other WTO-enforceable agreements tend to involve relatively large trading partners, often in the Asia-Pacific region, while the three in CORETRIPS3 include highly innovative emerging and developed countries.

In this light, it is reasonable to characterize the EU/EFTA accords, as well as the other WTO-enforceable pacts that do not qualify as CORETRIPS3 agreements, as relatively shallow 22
deals that often involve large economic areas with emerging and developed countries. Our results suggest that such arrangements are likely to encourage more patenting activity from outside economies relative to within-agreement members, because they signal a commitment to stronger IPR protection without a deep commitment to the elevated TRIPS-Plus norms. Put differently, those agreements signal a commitment to transparent and enforceable rights that may be amenable to innovation and technology transfer from non-member nations. The CORETRIPS3 agreements, however, largely led by the United States, go beyond that signal to an indication of even stronger protection, favoring applications from innovative member nations, such as the United States, Korea, and Japan. They also stimulate more patenting from outside the region in NHI members, who must adopt these stronger provisions. Further, this elevated protection is particularly important for the highly patent-sensitive firms in our high-IP clusters, explaining the strong growth of patent flows in them both within the agreements and from non- members. Overall, our findings suggest that IPAs have distinctive but intuitively plausible impacts on cross-border patent applications, which may embody significantly more technology transfer, particularly to emerging and developing members.

23
# **Table 5A. Impacts of IPAs on Bilateral Patent Filings by Industry Cluster: WTO LE2 IPAs**

|VARIABLES|(1)<br>Low-IP|(2)<br>AI|(3)<br>BIO|(4)<br>CHEM|(5)<br>ICT|(6)<br>MED|(7)<br>PT|(8)<br>Other|
|---|---|---|---|---|---|---|---|---|
|Intra (member to member)|-0.142|-0.475***|-0.141|-0.003|-0.095|-0.001|-0.316|-0.260|
||(0.182)|(0.168)|(0.140)|(0.148)|(0.162)|(0.200)|(0.208)|(0.188)|
|Extra1(between HI member and|0.159**|0.005|0.100*|0.133**|0.223***|0.163***|0.044|0.047|
|HI non-member)|(0.081)|(0.061)|(0.052)|(0.059)|(0.068)|(0.058)|(0.061)|(0.050)|
|Extra2(NHI destination in IPA from|0.097|-0.198|0.210**|0.191*|0.229|0.298**|-0.069|0.035|
|all non-members)|(0.123)|(0.212)|(0.096)|(0.113)|(0.174)|(0.133)|(0.195)|(0.137)|
|Extra3(NHI source in IPA to|-0.117|0.532|0.006|-0.122|0.549*|0.013|0.112|0.108|
|all non-members)|(0.322)|(0.371)|(0.317)|(0.272)|(0.295)|(0.357)|(0.463)|(0.311)|
|Any IPR provision not meeting|0.024|-0.078|-0.060|-0.013|0.084|0.041|0.014|0.068|
|WTO LE 2|(0.092)|(0.146)|(0.063)|(0.077)|(0.088)|(0.081)|(0.115)|(0.089)|
|Any bilateral investment agreement|0.412***|0.681***|0.339***|0.206|0.521***|0.416**|0.505***|0.491***|
||(0.160)|(0.182)|(0.125)|(0.134)|(0.152)|(0.180)|(0.193)|(0.170)|
|Observations|664,665|664,665|664,665|664,665|664,665|664,665|664,665|664,665|
|Origin-sector-year FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Dest-sector-year FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Pair-sector FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Pseudo R2|0.994|0.994|0.994|0.994|0.994|0.994|0.994|0.994|

Notes: see Table 4.

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# **Table 5B. Impacts of IPAs on Bilateral Patenting by Industry Cluster: US/EU/EFTA IPAs**

|VARIABLES|(1)<br>Low-IP|(2)<br>AI|(3)<br>BIO|(4)<br>CHEM|(5)<br>ICT|(6)<br>MED|(7)<br>PT|(8)<br>Other|
|---|---|---|---|---|---|---|---|---|
|Intra (member to member)|-0.087|-0.178|0.014|0.068|0.138|0.090|-0.055|-0.115|
||(0.155)|(0.132)|(0.136)|(0.160)|(0.143)|(0.161)|(0.187)|(0.149)|
|Extra1(between HI member and|0.074|0.060|0.144**|0.139|0.339***|0.160**|0.046|0.046|
|HI non-member)|(0.084)|(0.070)|(0.072)|(0.099)|(0.103)|(0.074)|(0.064)|(0.063)|
|Extra2(NHI destination in IPA from|0.118|-0.011|0.321***|0.211|0.363|0.340***|-0.042|0.087|
|all non-members)|(0.116)|(0.200)|(0.108)|(0.132)|(0.306)|(0.124)|(0.169)|(0.115)|
|Extra3(NHI source in IPA to|-0.261|0.200|-0.275|-0.583**|0.260|-0.423*|-0.312|-0.303|
|all non-members)|(0.334)|(0.413)|(0.238)|(0.291)|(0.494)|(0.244)|(0.516)|(0.362)|
|Any IPR provision not meeting|0.147**|0.119|0.033|0.044|0.193|0.127|0.229*|0.193*|
|WTO LE2|(0.071)|(0.190)|(0.060)|(0.059)|(0.135)|(0.086)|(0.123)|(0.101)|
|Any bilateral investment agreement|0.237**|0.285***|0.180**|0.109|0.216***|0.289***|0.209*|0.274***|
||(0.102)|(0.098)|(0.090)|(0.105)|(0.078)|(0.092)|(0.126)|(0.102)|
|Observations|664,665|664,665|664,665|664,665|664,665|664,665|664,665|664,665|
|Origin-sector-year FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Dest-sector-year FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Pair-sector FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Pseudo R2|0.994|0.994|0.994|0.994|0.994|0.994|0.994|0.994|

Notes: see Table 4.

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# **Table 5C. Impacts of IPAs on Bilateral Patenting by Industry Cluster: CORETRIPS3 IPAs**

|VARIABLES|(1)<br>Low-IP|(2)<br>AI|(3)<br>BIO|(4)<br>CHEM|(5)<br>ICT|(6)<br>MED|(7)<br>PT|(8)<br>Other|
|---|---|---|---|---|---|---|---|---|
|Intra (member to member)|0.187***|0.254|0.315***|0.269***|0.438***|0.388***|0.095|0.262***|
||(0.060)|(0.157)|(0.077)|(0.082)|(0.162)|(0.114)|(0.099)|(0.074)|
|Extra1(between HI member and|0.092|0.020|0.152|0.116|0.204**|0.120|-0.021|0.021|
|HI non-member)|(0.116)|(0.086)|(0.095)|(0.081)|(0.087)|(0.127)|(0.119)|(0.096)|
|Extra2(NHI destination in IPA from|0.266**|0.259**|0.382***|0.322**|0.489***|0.545***|0.301*|0.420***|
|all non-members)|(0.122)|(0.124)|(0.125)|(0.145)|(0.121)|(0.148)|(0.175)|(0.140)|
|Extra3 (NHI source in IPA to|-0.305|-0.266|-0.402*|-0.427|-0.445|-0.852***|-0.399|-0.548*|
|all non-members)|(0.297)|(0.290)|(0.222)|(0.403)|(0.344)|(0.229)|(0.444)|(0.286)|
|Any IPR provision not meeting|0.275**|0.309|0.128|0.097|0.361**|0.192|0.313*|0.330**|
|WTO LE2|(0.136)|(0.198)|(0.096)|(0.098)|(0.170)|(0.148)|(0.162)|(0.161)|
|Any bilateral investment agreement|0.065|0.034|-0.042|-0.024|-0.003|0.052|0.098|0.032|
||(0.058)|(0.119)|(0.052)|(0.063)|(0.118)|(0.062)|(0.072)|(0.055)|
|Observations|664,665|664,665|664,665|664,665|664,665|664,665|664,665|664,665|
|Origin-sector-year FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Dest-sector-year FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Pair-sector FEs|Y|Y|Y|Y|Y|Y|Y|Y|
|Pseudo R2|0.994|0.994|0.994|0.994|0.994|0.994|0.994|0.994|

Notes: see Table 4.

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# **5. Concluding Remarks**

The contents of PTAs continue to expand in both scope and depth, increasing the number of trade agreements that devote significant coverage to a wide assortment of regulatory environments extending beyond traditional trade policy and market access considerations. Intellectual property rights in particular have become an area of growing focus in this context, as the ever-increasing importance of the global knowledge economy has sharpened the incentives for policy makers and PTA negotiators to implement more rigorous and consistent systems of IPRs protections across countries. While a nascent literature exists exploring the effects of these developments on IPA member countries’ trade in goods, it is striking that little work to date has investigated whether such PTAs impact the dissemination of intellectual property between and beyond agreement member countries.

To explore this question, we empirically assess the role played by the proliferation of PTAs possessing substantive and legally binding language on IPRs, as defined by the World Bank’s database on the content of deep trade agreements and which we denote as IPAs, in shaping international flows of innovation as measured by cross-border patenting. To this end, we quantify the impacts of countries’ accession to IPAs in a structural gravity setting analogous to the widely used structural gravity model of trade. We employ detailed information on bilateral international patent applications at national patent offices, a data set which covers hundreds of countries over our sample period of 1995–2015. We further consider heterogeneity in the impacts of IPA accession as originating from the attributes of the agreements, delineating between “treatment” definitions that alternatively define IPAs as those possessing legally enforceable provisions on IPRs (WTO LE2 agreements), IPRs-related PTAs negotiated by the United States or EU/EFTA, and finally, IPAs possessing three or more TRIPS-Plus IPRs provisions (CORETRIPS3 agreements).

Our baseline analysis yields evidence that IPAs encourage heightened levels of total bilateral patent flows to member countries, as well as consistent increases in patent applications when broken down across a number of IPRs-intensive, high-technology industry clusters. However, the exact interpretation of this finding hinges on the nature of the IPA under consideration. For WTO LE2 agreements and US/EU/EFTA-negotiated agreements, these impacts manifest as increased patenting volumes to IPA-member countries originating from nonIPA-member countries, with no apparent rise in within-agreement patent flows. In striking 27
contrast, our findings on the impact of membership in IPAs possessing three or more core TRIPS-Plus provisions show that patent flows between members of such agreements are significantly higher, as are inward patent flows from outside the agreements to NHI (emerging and developing) members. While we attribute this disparity in our results to the nature of the agreements comprising the different categories of IPAs, the notable differences in these impacts are a finding that merits further investigation.

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