The Political Economy of Intellectual Property Piracy: Do the Special 301 Pressures Matter?

ABSTRACT We study the impact of the Special 301 process on global software piracy. US authorities use these legal provisions to goad countries considered as providing inadequate protection to US intellectual property, to strengthen their regimes. Estimating a panel vector autoregression, for the period 1994–2017, we find that piracy exhibits an insignificant response to Special 301 in the aggregate sample. The impulse response function reveals that the initial perturbation in piracy rates due to a shock in the Special 301 variable quickly damps out by the third period. The forecast error variance decomposition shows that the share of the change in Special 301 pressure is negligible in the total change in piracy rates. By contrast, intellectual property protection is strongly significant in curbing piracy. Exploring the heterogeneity of piracy response, a Special 301 shock reduces piracy in developed countries and countries with above‐median state capacity; whereas developing countries, those with below‐median state capacity, and those with below‐median institutional quality, appear unable and/or unwilling to do so, increasing piracy in the short run. Countries with above‐median trade dependence on the United States exhibit a counter‐intuitively insignificant response to Special 301, because this group also contains some developed countries with close ties to the United States.