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The Determinants of Pharmaceutical R&D Expenditures: Evidence from Japan

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Author Info
Jörg Mahlich
Thomas Roediger-Schluga ()

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Abstract

During the past 20 years, the world pharmaceutical industry has experienced a dramatic increase in R&D intensity. We apply and extend a model developed by Grabowski and Vernon (2000, Journal of Evolutionary Economics, 10, 201–215) with a pooled data sample of the 15 publicly listed Japanese drug firms for the period 1987–1998. As in the original study, we find expected returns to be an important determinant of R&D spending in the Japanese drug industry, albeit considerably smaller than in the U.S., which is particularly obvious in the case of returns from newly introduced drugs. However, our results are sensitive to econometric model specification, in particular to controlling for serial correlation and to a dynamic specification of the baseline model. Likewise, estimates on financial constraints are sensitive to model specification, indicating that Japanese drug firms face small or no financial constraints. Our results are consistent with the general literature on R&D investment behaviour, yet raise some methodological questions with regard to the original study. Copyright Springer 2006

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Publisher Info
Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 28 (2006)
Issue (Month): 2 (03)
Pages: 145-164
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Handle: RePEc:kap:revind:v:28:y:2006:i:2:p:145-164

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Related research
Keywords: investment; Japan; panel data estimation; pharmaceuticals; R&; D; L65; O31; O33;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bronwyn H. Hall, Jacques Mairesse, Lee Branstetter, and Bruno Crepon., 1998. "Does Cash Flow Cause Investment and R& D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms," Economics Working Papers 98-260, University of California at Berkeley. [Downloadable!]
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  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  3. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. F. M. Scherer & Dietmar Harhoff & J, rg Kukies, 2000. "Uncertainty and the size distribution of rewards from innovation," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 175-200. [Downloadable!] (restricted)
  5. Bronwyn Hall, 2002. "The Financing of Research and Development," Department of Economics, Working Paper Series 1004, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  6. Bronwyn H. Hall., 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," Economics Working Papers 92-194, University of California at Berkeley.
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  7. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
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  8. Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, vol. 15(06), pages 814-823, December. [Downloadable!]
  9. Henry Grabowski & John Vernon, 2000. "The determinants of pharmaceutical research and development expenditures," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 201-215. [Downloadable!] (restricted)
  10. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  11. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
  12. Silverberg, G. & Verspagen, B., 2004. "The size distribution of innovations revisited: an application of extreme value statistics to citation and value measures of patent significance," ECIS Working Papers 04.17, Eindhoven Centre for Innovation Studies, Eindhoven University of Technology. [Downloadable!]
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  13. Grabowski, Henry G. & Vernon, John M., 1994. "Returns to R&D on new drug introductions in the 1980s," Journal of Health Economics, Elsevier, vol. 13(4), pages 383-406. [Downloadable!] (restricted)
  14. Rebecca Henderson & Iain Cockburn, . "Scale, Scope and Spillovers: The Determinants of Research Productivity in Drug Discovery," Working Papers ec25/94, Department of Economics, University of Lancaster.
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  15. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Malmberg, Claes, 2008. "R&D and financial systems: the determinants of R&D expenditures in the Swedish pharmaceutical industry," CIRCLE Electronic Working Paper Series 2008-01, CIRCLE (Centre for Innovation, Research and Competence in the Learning Economy), Lund University. [Downloadable!]
  2. Evens Salies, 2009. "A test of the Schumpeterian hypothesis in a panel Of European electric utilities," Documents de Travail de l'OFCE 2009-19, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
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