This paper provides evidence that the implementation and enforcement of trade-based intellectual property reforms such as TRIPS increases domestic drug innovation, particularly in countries with a large generic pharmaceutical manufacturing industry. Using detailed data on pharmaceutical patenting activities for 102 countries and controlling for GDP, trade freedoms, and government regulation, I find intellectual property reform accelerates innovation in these countries by around 176 patent applications per year from 1985-2017. I find similar results for innovations made by “small entities.” These results suggest that pharmaceutical imitators are encouraged to innovate when faced with stronger IP laws. However, these reforms are only associated with increases in innovation for high income countries, which suggests that the innovative benefits of patent reform are almost exclusively reaped by wealthy countries.

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In his controversial thesis on the “clash of civilizations,” Huntington argues that the dominant form of post-Cold War conflict will be cultural. Huntington concludes that these cultural divisions are age-old and based in deep-rooted tensions of identity; thus, diverse countries will experience more civil war (Huntington 1993, 25). Academic critics rightly note that Huntington grossly simplifies cultures into homogenous entities and reduces individuals into members of “one collective identity,” but Huntington’s hypothesis is not completely wrong: cultural divides are indeed a major source of tension in society (Sen 2006, 45). However, the degree to which these cultural tensions can manifest as a full-blown conflict is contingent on the marginalization of a significant cultural group and aided by structural factors.

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This paper expands upon the growing body of research relating market size to innovation. Using detailed data on pharmaceutical patenting activities for 102 countries and 17 diseases, I focus on exogenous changes driven by cross-country reforms in pharmaceutical intellectual property strength from 1990-2015 and find consistently higher correlations of market size to innovation for diseases predominantly affecting richer countries in the study sample than those predominantly affecting poorer countries. These results suggest that there still exists a greater response to increases in market size for the diseases of the rich. I also find some small evidence that increases in intellectual property strength might have played a role in narrowing the innovation gap between these two types of diseases.

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