Globalization, Divergence and Stagnation

with an output change of -0,3%, +0,7% and +3,8% respectively. These numbers
suggest that, for the average country, gains form stronger IPRs may be uncertain.
The situation is different for trading economies: with openness one standard error
above the sample mean, the reaction of output becomes +3,7%, +4% and +5,1%
respectively. Conversely, for countries closed to trade (one standard deviation below
the sample mean) the effect may be negative: -4,3%, -2,5% and +2,5%. Similarly,
according to Columns 1-3, a 10% increase of the openness index in the average
country is associated with an output change of +2,9%, -2,1% and +1,5%, respec-
tively. In countries with patent rights one standard error above the sample mean,
the positive effect of trade is instead more pronounced: +5,5%, -0,3% and +2,2%.
Finally, for countries with patent rights one standard error below the sample mean,
the effect of trade becomes small or even negative: +0,3%, -3,9% and +0,8%. Al-
though the variability of estimates across specifications is not too high, given that
coefficients come form regressions using very different trade measures and estimation
techniques, it makes it difficult to draw sharp empirical conclusions. However, these
numbers indicate that open and perhaps large economies may benefit substantially
from stronger patent laws. It may thus suggest that the process of trade liberaliza-
tions in India and China could be more beneficial if accompanied by a tightening of
IPRs. Moreover, given the 34% increase of average openness over the sample period
and the high correlation between patent rights and income, these estimates suggest
that globalization may have contributed to the widening of income disparities.

How do these results relate to the empirical literature on trade, growth and
convergence? A general finding of several influential papers is that openness pro-
motes growth and convergence. In particular, a first strand of literature documents
a positive correlation between trade and growth.²⁹ Likewise, this paper shows that
integration may enhance productivity in all countries because of static (and poten-
tially dynamic) gains from trade, but in addition it argues that countries with better
IPRs policies may reap more benefits than others. Further, recent works by East-
erly and Levine (2002) and Rodrik et al. (2002) have questioned the robustness of
the correlation between trade and growth. In particular, these authors argue that
the correlation disappears after controlling for institutional quality and addressing
endogeneity issues. The importance of institutions is again in line with the central
message of this paper: that the effect of trade on productivity and growth depends

²⁹Frankel and Romer (1999) and Sachs and Warner (1995) are two notable examples.

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