IPR-Growth
I am attaching key excerpts from another paper. This one studies the relationship between Intellectual Property Rights and growth. The full paper is attached below -- with authors omitted.
Please provide a CRITIQUE BASED ON SECTION 1 of DHSY paper -- no original critiques based on your own understanding of econometrics -- our goal is to STUDY and UNDERSTAND the DHSY paper here. RELATE what you say as criticism to what is being said by DHSY in section 1
4.2 Selection of Variables
The economic variables selected for the study are presented in the following table:
4.3 Modelling IPRs and Economic Growth
The general form of our model is as follows;
GDP = β1 + β2IPR + β3FDI + β4EFW + β5TRADEOP + β6PopGrowth + β7SYR15 + β8GDI + Ui (1)
5. Econometric Techniques & Estimations
5.1 Unit Root Test
To check the stationarity of all variables we are applying Augmented Dickey-Fuller test and Phillips Perron tests. The results of the tests are demonstrated in table.1. In time series analysis the linear combination of two or more non stationary series becomes stationary which is called cointegaration in order to avoid spurious results. The objective of Johansen Cointegration test is to trace whether such non stationary linear combination of variables are cointegrated or not. The presence of cointegration among the variables provides basis for the application of Vector Error Correction Model. The main objective of the sationarity test is to find that how many times the variables are differentiated to induce the stationarity. If the variables are integrated of the same order then we apply Johansen cointegaration test.
The table exhibits that time series variables, i.e. Intellectual Property Rights (IPRs), Foreign Direct Investment (FDI), Gross Domestic Prduct (GDP), Economic Freedom of the World (EFW), Trade Openness (TRADEOP), Population Growth (POPGROWTH), Human Capital (SYR15) and Gross Domestic Investment (GDI), are non-stationary at level and become stationary at I(1).
5.2 Lag Selection Criteria
We started with the lag length of 5 and checked the Akaike Information Criterion (AIC) and Schwarz Criterion (SC). At first instance the AIC suggested for 5 lags which are optimal but the SC is fine with one lag. As we reduce the lag length from the maximum to minimum, we selected the AIC for lag length of 5. At lag length of one the values of both the AIC and SC resemble with each other and give minimum values. To have more significant justifications for the analysis we selected the one lag length criteria.
5.3 Johansen Cointergration Test
The cointegration test confirms the long run relationship among IPR and FDI, GDP, EFW, TRADEOP, POPGROWTH, SYR15 and GDI. The lag length one is chosen which confirm the lowest value for AIC and SC. The summary of the cointegration test is given in the following table:
We used both the Eigenvalue and Trace Statistic to determine whether cointegration between variables exists or not. In our summary table there are five cointegrated vectors which are confirmed by the critical value of 5% or the P-value of probability. The presence of the cointegration among the variables provides the basis of Vector Error Correction technique.
5.4 Vector Error Correction Model
The long run relationship between the set of variables normalized with respect to GDP can be written as:
GDP = 121.76IPR + 0.06FDI + 33.04EFW + 0.01TRADEOP + 131.90PopGrowth + 22.15SYR15 + 0.004GDI
The analysis clearly depicts that the enforcement of IPR index by one unit would significantly cause to increase the GDP by 121.76 units. Similarly, foreign direct investment, economic freedom of the world and human capital would positively affect the GDP by 0.06, 33.04 and 22.15 units, respectively. Moreover, 1% population growth would positively affect GDP by 131.90 units. However, the effects of gross domestic investment and trade openness on GDP are insignificant. The reason may be that the enforcement of IPRs may attract more foreign trade and investment which may consequently erode domestic investment and its impact on economic growth.
Following table presents the full set of adjustment coefficients in the VECM.
The results indicate that the short run response of GDP to changes in IPR is also positive and the GDP increases with IPR.
6. Results, Conclusions & Policy Recommendations
The results of our investigation confirm the hypothesis that enforcement of intellectual property rights promotes economic growth in Pakistan. The positive impact of IPRs on growth is confirmed at different levels of economic development.
The need to enforce intellectual property for economic growth arises on many grounds. First, protection of IPRs promotes innovation which consequently enhances productivity and growth. Second, the international demand is increasing for value added products that can be produced through advanced production technology. It means brand names recognition, reputation for quality and product innovation, is playing important role to satisfy this demand. Third, high growth sectors including information and computer technology, entertainment, genetics and biotechnology, support innovation for processed foods, clothing and household products, highly depend on IPRs. Fourth, domestic entrepreneurs acknowledge that their access to frontier technologies depend on the protection of intellectual property rights.
Establishment of intellectual property rights provides both opportunities and challenges. The opportunities are given in the forms of conducive environment for innovation, technology transfer, investment flows, product development and access to global market. On the other hand challenges are given by diverting resources from informal to formal activities, coping with higher costs of imit