I study the short- and long-term effects of regional trade agreements (RTA) with strict intellectual property (IP) provisions. An empirical analysis using gravity methods suggests that regions signing RTAs with IP provisions share more technology in the form of technology licensing following the agreement. I set up a multi-country, two-sector model with endogenous productivity through innovation and adoption to quantify the effect of such agreements on innovation, growth and welfare. Adopters pay royalties to innovators for the use of their technology; the model allows for various degrees of IP rights enforcement, from pure imitation to perfect enforcement of IP rights. An improvement of IP protection in exchange for market access increases welfare, growth and innovation in both developed and developing countries. Developed countries benefit from a higher return to innovation and a lower home trade share, accruing welfare gains both in the short- and long term. Developing countries are impacted through three channels: (i) internal IP reforms increase the return of domestic innovators, (ii) lower trade costs increase profits from exports, and (ii) higher royalty payments reduce the return to adopters. A counterfactual exercise shows that while the first two forces dominate in the long run, there are short-term losses from a lower return to adopters.

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