We study how legal institutions affect international trade. Intellectual property enforcement applies to all firms serving a market, regardless of where production occurs, implying that changes in enforcement create destination-specific litigation trade costs. We identify these effects using reforms to the UK intellectual property court system between the end of 2010 and 2013 that reduced enforcement costs while leaving the scope of intellectual property rights unchanged. Imports of litigation-intensive products increased following the reforms, but this average effect masks substantial heterogeneity. Imports rose from countries with strong domestic intellectual property protection and fell from countries with weaker protection. Linking Chinese customs and patent data, we show that firms holding UK-registered patents expanded exports to the UK, while innovation abroad remained unchanged.
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Richard Kneller, Ioannis Papadakis and Lanlan Wu
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