Growth

This paper theoretically and empirically investigates the e¤ects of patent protection on innovation and economic growth by looking at the interaction between patent system and \u85nancial system. On the one hand, patent pro-tection accelerates economic growth through enhancing the value of innova-tion. On the other hand, it lowers the demand for capital by increasing the price, thereby weakening the learning-by-doing e¤ect and raising the cost of production. It follows, in turn, patent protection sties innovation. As a consequence, a non-monotonic relationship between patents and economic growth could be seen. In addition, the degree of patent protection that maximizes the growth rate is decreasing with the degree of \u85nancial devel-opment, when the interaction between patent system and \u85nancial system is considered. Our cross-section and panel regressions support our theoretical results