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Industry regulation and firm innovation: Evidence from national centralized drug procurement policy in China

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  • Zhang, Siyu
  • Huang, Yuexin
  • Luo, Danglun

Abstract

Promoting innovation in pharmaceutical manufacturing is crucial for national health. This study investigates the impact of industry regulations on firm innovation by analyzing China's national centralized drug procurement (NCDP) policy. The findings indicate that the regulatory reform has effectively stimulated innovation among pharmaceutical enterprises, particularly non-state-owned ones, which lack political connections, are relatively small in scale, and operate in challenging market environments. The reform exerts its influence by changing product market competition patterns, including altering competition strategies, and intensifying competitive pressures. This study provides empirical evidence supporting the efficacy of industry regulations and offers insights for fostering innovation and development in pharmaceutical enterprises through the lens of market competition.

Suggested Citation

  • Zhang, Siyu & Huang, Yuexin & Luo, Danglun, 2026. "Industry regulation and firm innovation: Evidence from national centralized drug procurement policy in China," Economic Analysis and Policy, Elsevier, vol. 89(C), pages 421-441.
    • Handle: RePEc:eee:ecanpo:v:89:y:2026:i:c:p:421-441
    DOI: 10.1016/j.eap.2025.12.013
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    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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