Intellectual property rights, technical progress and the volatility of economic growth

In this note, we analyze the effects of intellectual property rights on the volatility of economic growth. Our analysis is motivated by the observation that the strengthening of patent protection and the increase in R&D in the US coincide with a reduction in growth volatility beginning in the mid 1980’s. To analyze this phenomenon, we develop an R&D-based growth model with aggregate uncertainty in the innovation process and apply the model to ask whether increasing patent strength and R&D can lead to a significant reduction in growth volatility. We find a small but non-negligible effect that explains no less than 10% of the observed reduction in growth volatility in the US.