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Following the controversy regarding the effects of stronger intellectual property rights (IPR) on technological innovation, the purpose of this paper is to systemically examine the relationship between IPR and technological innovation under the North‐South analytical framework.

Using panel data from 27 developed countries and 57 developing countries, this paper operates the empirical examination on determinants of technology innovation in an open economy by separated sample of the North and the South. The paper adopts the instrumental variable (IV) estimation to handle the possible endogenous problem caused by IPR variable.

This paper finds that the threshold effects of stronger IPR on innovation depended on the initial IPR level. Neither too strong IPR nor too weak IPR are conducive to innovation. Furthermore, the optimal level of IPR in developed countries is higher than that of developing countries; this difference implies that adoption of IPR standard of developed countries may be inefficient for developing countries.

The authors' empirical results uncover new empirical evidence to support “the optimal IPR hypothesis” and provide this field with more detailed and reliable empirical evidence.