Effects of TRIPS on Growth, Welfare and Income Inequality in an R&D-Growth Model

What are the effects of the WTO’s TRIPS Agreement on growth, welfare and income inequality? To analyze this question, we develop an open-economy R&D-growth model with wealth heterogeneity. Under TRIPS, the North experiences higher growth and welfare at the expense of higher income inequality. As for the South, it experiences higher growth at the expense of lower welfare and higher income inequality. There exists a critical degree for the domestic importance of foreign goods below (above) which global welfare decreases (increases) under TRIPS. In light of our findings, we discuss policy implications on China’s accession to the WTO in 2001.