Globalization, Divergence and Stagnation



can have undesirable effects.30 In a world of integrated economies, profits from
innovations play a crucial role in directing technical progress towards the needs
of all countries and in sustaining long-run growth incentives. This suggests that
trade liberalization in developing countries should be accompanied by reforms aimed
at a tightening of intellectual property rights. With the inclusion of the TRIPS
agreement in the WTO, international negotiations have recently taken important
steps in that direction. A major contribution of this paper was thus to provide new
theoretical foundations for these e
fforts. However, even though the analysis hints at
large potential gains from global regulations, imposing common standards can be
costly for some less developed countries and may not be su
fficient. As long as the
economic weight of the South is low, pro
fits generated from its markets would not
be enough to provide the right incentives for developing appropriate technologies.
Although the model has focused on intellectual property rights asymmetries, the
sale of innovations in poor countries can generate small pro
fits for a number of other
reasons, including high transaction costs and risks of expropriation. Given these
distortions, promoting research aimed at the needs of the less developed countries
appears to be a the key element for reducing cross-country income di
fferences and
fostering world growth.

While the paper has emphasized the quasi public good nature of technology
emerging from the endogenous growth literature, where knowledge
flows with no
frictions across borders, trade itself could contribute to technology transfer between
countries. Similarly, the paper has abstracted from new products and product cycle
trade. Further, infringements of intellectual property rights and
firm structure have
been modeled in a very stylized way that does not explicitly include micro details.
As a consequence, the model is silent on the potential role played by multinationals.
Incorporating these elements into the analysis would certainly help to understand
the complex interactions between innovation and income in the global economy and
seems a fruitful direction for future research. Finally, the paper has shown that
the consequences of globalization may depend on institutional variables such as

30Note that the paper does not compare welfare across equilibria. Although free trade can lead
to income divergence and even reduce the world growth rate, it also generates gains that can make
all countries better o
ff. However, welfare analysis is not the main concern of the paper, which is to
show a new link between North-South trade, the world income distribution and growth. Further
welfare analysis would yield arbitrary results, as it is unclear how to quantify gains from trade in
the present model, and would be complicated by non-trivial transitional dynamics.

29



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