| Abstract | We develop an extended North-South Product cycle model in which Southern indigenous innovation is endogenous, discussing the incentive effects of (intellectual property rights (IPRs) on indigenous innovation, and the overall effects of IPRs on the North and the South both. Our model predicts these effects depend on the initial skill level and absorptive capacity in the South, and more crucially on market structure due to the nature of North innovation.. Under oligopoly due to vertical innovation, tighter IPRs hurts both regions, and it does not induce indigenous innovation. Under monopolistic competition due to horizontal innovation, tighter IPRs benefits both in the short run if skill levels are scarce in the South, and there is no indigenous innovation, too. Tighter IPRs benefits both in the long run if skill levels are abundant, and it induces indigenous innovation. We find that there exists an optimal degree of IPRs protection in the South, which depends on the initial skill level and market structure , and it does induce indigenous innovation ,and may differentiate from that in the North. |