The Linder Hypothesis and Trade of Intellectual Property Services

Abstract

Countries can purchase the right to use intellectual property (IP) owned by entities abroad. When this occurs, the country purchasing the right to use foreign-owned IP is characterized as importing IP services, while the country from which the IP originates is characterized as exporting IP services. This research examines if the Linder hypothesis that countries of similar income levels trade more holds true for trade of IP services. The results for a sample of all trade partners confirm that the Linder hypothesis holds. However, when limiting the sample to low- and middle-income importing countries, income differences between trade partners no longer has a statistically significant impact on IP services trade. Instead, for these countries, the strength of IP protection plays a more impactful role. (O34, F14, O30)