Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

We develop an endogenous-growth model in which we distinguish between inventors and innovators. This distinction implies that stronger protection of intellectual property rights has an inverted U-shaped effect on economic growth. Intellectual property rights protection attributes part of the rents of commercial exploitation to the inventor that would otherwise accrue to the entrepreneur. Stronger patent protection will therefore increase the incentive to do R&D and generate new knowledge. This new knowledge has a positive effect on entrepreneurship, innovation and growth. However, after some point, further strengthening of patent protection will reduce the returns to entrepreneurship sufficiently to reduce the overall growth rate.