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Inspired by the Chinese experience, the authors develop a Schumpeterian growth model of distance to frontier in which economic growth in the developing country is driven by domestic innovation as well as imitation and transfer of foreign technologies through Foreign Direct Investment. They show that optimal IPR protection is stage-dependent. At an early stage of development, the country implements weak IPR protection to facilitate imitation. At a later stage of development, the country implements strong IPR protection to encourage domestic innovation. Finally, they provide empirical evidence that supports this theoretical finding.
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