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Article Excerpt
I. INTRODUCTION
Ethics may create economic advantages for countries (Donaldson 2001). One common claim for the impact of good ethics on economic performance is tied to the social promotion of economic incentives. The protection of intellectual property rights (IPRs) is required to provide motivation for innovation (Ginarte and Park 1997). The respect for property rights in general, and for IPRs in particular, is crucial for the establishment of a well-functioning market system and economic development (Chen and Puttitanun 2005). If people fail to respect intellectual property and engage in intellectual property violations such as software piracy, then the incentive to create new and better forms of intellectual property would diminish. Because of computer software's manifest and increasing importance in global economy and the centrality of IPRs to the development of the software industry (Sell 2003, Chapter 5; Shadlen, Schrank, and Kurtz 2005), software piracy is a particular ethical issue that deserves discussion.
The protection of IPRs in developing countries has been a debated issue in recent years. This debate is often placed in a north-south framework, where the predominant view is that southern (developing) countries tend to lose from protecting IPRs. While less IPR protection may cause imitations of foreign technologies, which reduce the market power of foreign firms and benefit domestic consumers, a developing country still needs to strengthen IPR protection to encourage innovations and international technology diffusion (Park and Ginarte 1996). In developing countries, IPR protection will foster dynamic competition (Rapp and Rozek 1990). New improved products or new uses for established products will be introduced. Local industries will get the foreign help they need to survive and to exploit their comparative advantage in world markets. The lower software piracy rates of the north have a positive effect on economic growth by encouraging innovation. On the other hand, the higher software piracy rates of the south also have a positive effect on economic growth by stimulating the dissemination of new software applications. However, in the long run, there are some arguments of why developing countries need to enhance the protection of IPRs and reduce software piracy rates. Diwan and Rodrik (1991) argue that without the southern protection of IPRs, northern countries would not develop technologies largely needed by the south. Yang and Maskus (2001) point out that northern firms may react to the lack of IPR protection in the south by making their technologies more difficult to imitate. Park and Lippoldt (2005) indicate that IPR protection and effective enforcement can be instrumental in enabling firms in developing nations to access and exploit technologies through international technology diffusion. Thus, even if infringement may lead to short benefits, weak IPR protection produces little innovation, and then, there is no interest in defending IPR. This could bring a vicious circle (Park and Ginarte 1996). Protecting IPRs should be a public policy for developing countries seeking sustained economic growth (Rapp and Rozek 1990).
For the past two decades, Asia has emerged as one of the most important economic regions. The "Asian Tigers," China, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, and Thailand, are particularly attractive. Their economic growth rates are more than twice those of Canada and the United States in 2003 (World Bank 2003). These Asian economies, however, have higher software piracy rates. Table 1 presents estimated rates of software piracy in 11 Asian economies and 7 non-Asian economies from 1994 to 2002. The 18 economies are all Asia-Pacific Economic Cooperation (APEC) members. The Asian economies include China, Japan, the Newly Industrialized Economies (NIEs; Hong Kong, Singapore, South Korea, and Taiwan), and the ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand, and Vietnam), the five selected members of the Association of Southeast Asian Nations (ASEAN). The non-Asian economies include four industrialized countries (Australia, Canada, New Zealand, and the United States) and three developing countries (Chile, Mexico, and Peru). In most Asian economies, although there exists dramatic improvement in the protection of software, rates of change and overall levels of protection vary widely and do not exhibit convergence.
Data envelopment analysis (DEA; Charnes, Cooper, and Rhodes 1978) has been used to evaluate the relative macroeconomic performance of economies (e.g., Lovell, Pastor, and Turner 1995; Ramanathan 2005). In general, DEA is performed at a given point of time. The Malmquist productivity index, one of its extensions, is a commonly used approach for measuring productivity change over a period of time. Fare et al. (1994b) use the Malmquist index to analyze productivity growth for 17 Organization for Economic Cooperation and Development countries by considering labor and capital as inputs and gross domestic product (GDP) as an output. Chang and Luh (2000) use the same approach to perform productivity analysis for ten Asian economies. The Malmquist index allows for further decomposition of...
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