9410625 MASKUS Differences in patent laws across countries have been a major issue in the multilateral GATT negotiations in the Uruguay Round, in the negotiation of the North American Free Trade Area, and in U.S. efforts to discipline foreign unfair trade practices. It is argued that weak patent laws in developing countries tend to distort international trade and investment flows by inducing innovative firms to withdraw from servicing markets with limited protection. There is, however, virtually no reliable information about whether varying international patent laws tend to expand or restrict trade. Theoretical models suggest that either of two conflicting outcomes are possible. On the one hand, because stronger patents provide additional market power to firms, the firms may choose to engage in greater exercise of that market power through export limitations and price discrimination. On the other hand, stronger patent laws tend to expand the available market size for innovative firms. It is important to determine how domestic regulations of this sort, as opposed to standard trade barriers, influence international trade. This project will specify a series of theoretical models that allow for various market structures and changes in trading behavior induced by marginal shifts in patent laws. In addition, econometric models will be used to test empirically the hypotheses generated by the theoretical models. ***
