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

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  • Mahlich, Jörg C.

    ()
    (Wirtschaftskammer Österreich)

  • Roediger-Schluga, Thomas

    ()
    (ARC Systems Research)

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) with a pooled data sample of the 15 publicly listed Japanese drug firms for the period 1987 to 1998. As in the reference paper, 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.

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Bibliographic Info

Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 015.

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Date of creation: 2006
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Handle: RePEc:unm:unumer:2006015

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Keywords: R&D; investment; panel data estimation; pharmaceuticals; Japan;

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References

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  1. Hall, Bronwyn, 2002. "The Financing of Research and Development," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt5rf0x9gz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 115-143, August.
  3. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  4. 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," Working Papers, Eindhoven Center for Innovation Studies 04.17, Eindhoven Center for Innovation Studies.
  5. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Bronwyn H. Hall., 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," Economics Working Papers, University of California at Berkeley 92-194, University of California at Berkeley.
  7. F. M. Scherer & Dietmar Harhoff & J, rg Kukies, 2000. "Uncertainty and the size distribution of rewards from innovation," Journal of Evolutionary Economics, Springer, Springer, vol. 10(1), pages 175-200.
  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.
  9. 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, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  10. Rebecca Henderson & Iain Cockburn, 1996. "Scale, Scope, and Spillovers: The Determinants of Research Productivity in Drug Discovery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 32-59, Spring.
  11. Miarka, Tobias, 1999. "The recent economic role of bank-firm relationships in Japan," Discussion Papers, Research Unit: Market Dynamics FS IV 99-36, Social Science Research Center Berlin (WZB).
  12. Henry Grabowski & John Vernon, 2000. "The determinants of pharmaceutical research and development expenditures," Journal of Evolutionary Economics, Springer, Springer, vol. 10(1), pages 201-215.
  13. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
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Cited by:
  1. Bastian Rake, 2012. "Determinants of Pharmaceutical Innovation: The Role of Technological Opportunities Revisited," Jena Economic Research Papers 2012-018, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Barrenho, E & Smith, PC & Miraldo, M, 2013. "The determinants of attrition in drug development: a duration analysis," Working Papers, Imperial College, London, Imperial College Business School 12204, Imperial College, London, Imperial College Business School.
  3. Jörg Mahlich, 2010. "Patents and performance in the Japanese pharmaceutical industry: An institution-based view," Asia Pacific Journal of Management, Springer, Springer, vol. 27(1), pages 99-113, March.
  4. Evens Salies, 2009. "A test of the Schumpeterian hypothesis in a panel Of European electric utilities," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2009-19, Observatoire Francais des Conjonctures Economiques (OFCE).

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