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Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe

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  • Koenig, Pamina
  • MacGarvie, Megan

Abstract

This paper examines the relationship between cross-country differences in drug price regulation and the location of biopharmaceutical Foreign Direct Investment (FDI) in Europe. Simple theory predicts that price regulation in one country might affect total investment, but not the location of that investment, if sales are global. Nevertheless, some manufacturers threaten that the introduction of price regulation in a country will motivate them to move their investments to other countries. Are such threats cheap talk, or is there evidence that firms avoid price-controlling countries when making FDI location choices? We use data on 527 investments initiated in 27 European countries between 2002 and 2009 and find that investors are less likely to choose countries with price controls, after controlling for other determinants of investment. We also observe a relative decline in investment in countries that increased the stringency of regulatory regimes during our sample period. The effect is restricted to non-manufacturing investments and is most robust for those related to administrative functions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 30 (2011)
Issue (Month): 5 ()
Pages: 950-965

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Handle: RePEc:eee:jhecon:v:30:y:2011:i:5:p:950-965

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Web page: http://www.elsevier.com/locate/inca/505560

Related research

Keywords: Pharmaceutical industry; Location choices; Price regulations; Discrete choice model;

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References

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Cited by:
  1. Ake Blomqvist & Colin Busby & Don Husereau, 2013. "Capturing Value from Health Technologies in Lean Times," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 396, December.

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