Innovation, Inequality and Intellectual Property Rights

We examine whether income inequality explains innovation across countries. The mechanism could be twofold: first, a large middle class could have an impact on institutions, including intellectual property rights (IPRs), which could in turn affect innovation. Second, evidence from US economic history suggests direct linkages between middle class share and innovation via supply and demand effects. Using IVE to address endogeneity, we find that middle class share explains patterns of resident patenting, while nonresident patenting is driven more by exogenous factors and global integration. Our results illustrate an additional channel through which income inequality can impact long run growth. (C) 2008 Elsevier Ltd. All rights reserved.