Globalization, Divergence and Stagnation

Globalization, Divergence and Stagnation*

Gino A. Gancia^

CREI and IIES

May 2003

Abstract

In a world where poor countries provide weak protection for intellectual
property rights, market integration will systematically shift technical change
in favor of rich nations. For this reason, free trade can increase international
income differences. At the same time, integration with countries where intellec-
tual property rights are weakly protected can have a large adverse effect on the
world growth rate. These results provide a strong rationale for global regula-
tions, critical in a system of interdependent economies for sustaining innovation
and reducing income inequality. Supportive empirical evidence is presented.

JEL classification: F14, F43, 033, 034, 041.

Keywords: Economic Growth, North-South Trade, Intellectual Property
Rights, Cross-Country Income Differences, Innovation Diversion.

*1 am very grateful to Daron Acemoglu, Torsten Persson, Jaume Ventura and Fabrizio Zilibotti
for many insightful discussions. I also thank Philippe Aghion, Pol Antras, Alessandra Bonfiglioli,
Francesco Caselli, Paolo Epifani, Diego Puga, Paul Segerstrom, Bob Staiger, Dan Trefler and semi-
nar participants at MIT, IIES, Stockholm University, Stockholm School of Economics, University of
British Columbia, Toronto, Wisconsin, Rochester, CREI, Pompeu Fabra, UCL, Bocconi University
and the European Winter Meeting of the Econometric Society (Budapest, 2002) for helpful com-
ments. The usual caveat applies. Financial support from the Wallander and Hedelius Foundation
is gratefully acknowledged. This paper was written while visiting the MIT Economics Department.
I thank MIT for its hospitality.

^Mailing address: CREI, Universitat Pompeu Fabra, Ramon Trias Fargas, 25-27, 08005,
Barcelona (Spain). E-mail: [email protected]

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