Abstract: What determines the levels of intellectual property rights (IPR) protection in a globalized economy? How does it impact developing and developed countries? To answer these questions, this paper develops a two-country endogenous growth model in which firms can innovate and imitate locally and globally, and governments choose IPR policies strategically. Beyond the traditional static cost and dynamic benefit from IPR protection, this framework spotlights three key dynamic burdens: limiting domestic imitation, restricting global imitation, and discouraging escape-competition innovation. From the empirical analysis on patent assignments and patent litigation data between the US and China, I find (i) the US domestic distribution of technologies is relatively stable, while China’s domestic distribution transformed from the 1990s to the early 2000s and has stabilized since 2005; (ii) the global distribution of technology has transformed from a US-dominant position to become more even; (iii) both local and global imitation are positively correlated with technology gaps. The quantitative analysis suggests three main findings. First, strengthening IPR enforcement leads to an inverted-U-shaped long-run growth rate. Second, governments’ horizon matters. Strong short-run benefits of imitation cause both governments to pick weaker IPR policies when they consider transitional welfare. Lastly, the Nash equilibrium suggests that both countries should enforce lower IPR protections. The over-protection results in significant welfare losses of 6.4% and 7.2% for the US and China, respectively.

Abstract: This paper presents a multi-sector model of tertiarization, where final consumption is conceptualized as a set of wants that households fulfill using various sectoral production technologies, to explore the role of tertiarization in structural transformation. Building on our established facts about the service sector, we introduce two key features: service upgrading and home saturation. These mechanisms restrict the expansion of home production, thereby reinforcing the dominance of market-based service production. Since home production tends to be more manufacturing-intensive while market production is more service-intensive, this dynamic results in a declining manufacturing-to-service value-added ratio over time.

Countries exhibit markedly different dynamics in regime transitions. Moreover, there is a positive correlation between human capital and democracy. To understand the determinants of transitional paths, this paper constructs a dynamic model of revolution through the lens of coevolution of human capital and democracy knowledge. The static part of the model suggests the following mechanism. The difference in gross incomes dictates workers’ incentive to revolt and rulers’ capability to deter it while the relative human capital level sets the conditional likelihood of a successful revolution. Thus, the political outcomes can be determined by three variables, the current human capital of the ruler, the current human capital of the work, and the time spent on education. The dynamic part endogenizes the choice of education and the coevolution of human capital and democracy knowledge. Simulating the economies with different initial human capital distribution, I discover that (i) there are three types of stationary economic equilibria, which are traditional-sector-only, semi-modernized, and full-modernized equilibrium; (ii) there are two types of stable political regimes, which are peaceful democracy and peaceful autocracy; (iii) revolution only happens in transition and occurs in countries when the difference in initial human capital is at a medium level.

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