International patent protection and trade: Transaction-level evidence

What is the causal effect of patent protection on a firm's export performance?

Understanding the link between intellectual property rights and international trade is crucial because stronger patent protections can incentivize firms to export more by providing legal security against imitation and enhancing the attractiveness of foreign markets, thereby contributing to economic growth and innovation dissemination.

Utilizing transaction-level data from French firms covering exports and patent applications from 2002 to 2011, we examined the relationship between patent protection and export performance. The analysis included over 4 million transactions linked across 92,165 firms. We employed a fixed effects framework to account for firm, product, country, and time variations and applied an identification strategy using rejected patent applications to address the endogeneity of patenting decisions.

We find that patent protection increases export quantities by 6.3% on average for firm-product-country combinations. Rejection of patent applications was associated with a significant collapse in exports, with values dropping by nearly 70%. Additionally, our results highlight that while patented products led to higher export quantities, there was little evidence of a price premium, suggesting firms value patents more for legal security than for monopolistic pricing opportunities.

• 1,955,535 transaction-level observations from French customs data from 2002 to 2011
• 81,774 patent applications filed by 8,331 French firms
• Unique links between products and patents at the firm-product-country level

• Patenting decisions are endogenous to export performance, hence the need for a strategy exploiting rejected patents to identify causal effects.
• The patenting process guarantees some legal protection, which in turn influences a firm's decision to export.
• The fixed effects model adequately controls for unobserved factors affecting export decisions at the firm, product, and country levels.