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Parallel Imports And Innovation In An Emerging Economy: The Case Of Indian Pharmaceuticals

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  • Andrea Mantovani
  • Alireza Naghavi

Abstract

This paper studies the impact of the re‐importation of imitated pharmaceuticals as a by‐product of an open policy toward parallel import (PI) on process innovation. Foreign investment by a firm to exploit a new unregulated market with weak intellectual property rights can give rise to imitation. These products can potentially re‐enter the original country when PI is allowed influencing research and development (R&D) incentives. In an emerging economy with technologically heterogeneous firms, trade costs shift PI‐related market share losses from the more to the less R&D efficient firm, inducing the former to strategically increase R&D. PI accompanied by tariffs also induces higher R&D effort by the technologically inferior firm when it results in an expansion of its sales abroad. A tariff on PI is most likely to increase welfare when the technological gap between the two firms at home is sufficiently large. Copyright © 2011 John Wiley & Sons, Ltd.

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  • Andrea Mantovani & Alireza Naghavi, 2012. "Parallel Imports And Innovation In An Emerging Economy: The Case Of Indian Pharmaceuticals," Health Economics, John Wiley & Sons, Ltd., vol. 21(11), pages 1286-1299, November.
    • Handle: RePEc:wly:hlthec:v:21:y:2012:i:11:p:1286-1299
    DOI: 10.1002/hec.1790
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    References listed on IDEAS

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    Cited by:

    1. Charitini Stavropoulou & Tommaso Valletti, 2015. "Compulsory licensing and access to drugs," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(1), pages 83-94, January.

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