In equations 4 to 6 above, the gross national income (GNI) measured at purchasing-power-parity means the whole value (income) of productive activities – goods and service no matter in this country and foreign country when considering price differences among countries. For example, an US-owned subsidiary which operates in other country might decide to send earnings back to parent company in US. GNI includes this kind income.
This index can be applied to compare economic conditions, size of economies across countries (The World Bank, 2008) owing to increases in income on the basis of increases in disposable income as well as increases in consumption expenditure (Gwartney et al. , 1996). Second, population size is associated with market size. A larger economic size and population are regard as a large potential labour supply, a strong potential market demand and a loose market. Third, openness to trade is a measure of the attitude and policies of governments that affect international trade.
Greater trade openness implies low trade barriers and trade costs. Thus, it might stimulate international trade and economic growth associated with satisfactory trade policy. Based on above explanations, these equations suggests positive links between export and three explanatory variables, GNI per capita, population and openness to trade, respectively. <a> Positive = the market expansion effect; Negative = the market power effect Next, long distance implies higher transportation cost. Conversely, higher tariff rate rises on higher cost.
The competitive advantage of exporting countries, such as cost advantage, would be weakened owing to higher transportation costs. Thus, distance and tariff rate are inversely related to the international trade volumes. Finally, a few numbers of dummy variables are employed in this study in order to effectively segment data for analyzing the impact of patent right protection. However the effect might be positive, negative or even be ambiguous, as mentioned above, because the market power effect and market expansion effect might occur at the same time.
When the level of patent right protection is improved, the market power reduces exports as a result of the more concentrated market power exporters gained; while the market expansion effect increase exports because of the increase of demand. Exporters might not be willing to produce sufficient products to satisfy the whole society because a thing is valued if it is rare. Therefore, the effect depends on the relative dominance of market expansion effect or market power effect.
Table 2 above summarizes the relationship between each independent variables and exports. 4. 2 Method and data In this paper, the bilateral export data includes U. S. all export commodities. The cross-sections year is 2005. Export data compiled from the U. S. Department of Commerce and the U. S. International Trade Commission (USITC). I choose aggregate U. S. export data instead of industry level data because the trade information by Standard Industrial Classification (SIC) codes are only available through 2001 on the USITC website.
For further perspective, to verify all export transaction can help us to have a brief overall picture of the subject. Hence, I decide that the exporter (abbreviation j) is the United State and importers (abbreviation k) are the top forty-nine countries partners. From the original detailed data, I observe that US exports concentrate on the top five countries, naming Canada, Mexico, Japan, China and United Kingdom in order. Over 50% of imports are traded to the top five trading partners.
Data on GNI per capita indicator come from the World Development Indicator Database of the World Bank. I further sort GNI per capita into four groups according to the Income Classification of World Bank – high (GNI per capita of $10,726 or more), upper middle (GNI per capita is more than $3,466 but less than $ 10,725), lower middle (GNI per capita is more than $876 but less than $3,465), and low (GNI per capita of $875 or less) in 2005. However, from the selected countries, no countries are grouped into low income group.
Dh, Dum, and Dlm represent three dummy variables for the level of development. The value of dummy variables is 0 or 1. In a regression analysis, dummy variables can be used to group data. If data satisfy a specific condition, its value is 1; if not, its value is 0. Hence, the interaction between patent rights protection and the levels of development can be expressed as PRkDh, PRkDum, and PRkDlm. Through this graded income data, I can estimate the influence of patent rights on the international trade across countries with different economic development levels.
Table 3 below summarizes that the distribution of income and patent rights development from 49 US selected importing countries in 2005 seems to concentrate on those countries with high income and strong patent rights protection without regard to export value. Half of importing countries, precisely twenty-eight, are grouping into high income group; twenty-seven countries are sorting into the highest patent rights protection group (index of patent rights is from 4 to 5).
Next, the population statistics derive from the United Nations, DESA, and World Population Prospects: The 2007 Revision Population Database of United Nation. As pointed out earlier, the size of population in a country can be used to estimate the market size. We attempt briefly analyze these raw data in order to further understand this issue. Thus, Figure 5 below shows the distribution of population size of the selected countries in 2005. It is noteworthy that US tent to export to countries with larger domestic market, in particular countries which the population size is between 20 to 50 million.
Furthermore, the economic freedom index is obtainable online from the website of the Heritage Foundation. This index is evaluated on ten component variables as business freedom, trade freedom, and monetary freedom, freedom from government, fiscal freedom, property rights, investment freedom, financial freedom and labour freedom. Besides, the Heritage Foundation also provides a list of tariff rates in all countries. Figure 6 below shows that the economic freedom index of US top forty-nine trade partners.