Modeling Software Piracy in Developed and Emerging Economies

The software industry loses billions of dollars annually to software piracy and has raised awareness of the high software piracy rates worldwide, particularly in emerging economies. We build a general model of software piracy that includes three economic and social factors suggested by the literature, including per capita GNI, the relative size of a country´s IT market, and government corruption. We then test the model with respect to whether an economy is developed or emerging as designated by OECD membership and find no structural variation. However, a structural break did exist with respect to the relative size of a country´s IT market. The analysis suggests that the classification of an economy as developed or emerging is not necessarily useful for understanding the causal mechanisms that give rise to software piracy. Our findings suggest more insight can be gained by formulating strategies that take into account the relative size of a country´s IT market.