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Pharmaceutical Innovation, Mortality Reduction, and Economic Growth

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  • Frank R. Lichtenberg

Abstract

We perform an econometric investigation of the contribution of pharmaceutical innovation to mortality reduction and growth in lifetime per capita income. In both of the periods studied (1970-80 and 1980-91), there is a highly significant positive relationship across diseases between the increase in mean age at death (which is closely related to life expectancy) and rates of introduction of new, priority' (as defined by the FDA) drugs. The estimates imply that in the absence of pharmaceutical innovation, there would have been no increase and perhaps even a small decrease in mean age at death, and that new drugs have increased life expectancy, and lifetime income, by about 0.75-1.0% per annum. The drug innovation measures are also strongly positively related to the reduction in life-years lost in both periods. Some of the more conservative estimates imply that a one-time R&D expenditure of about $15 billion subsequently saves 1.6 million life-years per year, whose annual value is about $27 billion. All age groups benefited from the arrival of new drugs in at least one of the two periods. Controlling for growth in inpatient and ambulatory care utilization either has no effect on the drug coefficient or significantly increases it.

Suggested Citation

  • Frank R. Lichtenberg, 1998. "Pharmaceutical Innovation, Mortality Reduction, and Economic Growth," NBER Working Papers 6569, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6569
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    1. Zvi Griliches, 1998. "R&D and Productivity Growth at the Industry Level: Is There Still a Relationship?," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 213-240 National Bureau of Economic Research, Inc.
    2. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1996. "Are Medical Prices Declining?," NBER Working Papers 5750, National Bureau of Economic Research, Inc.
    3. Lichtenberg, Frank R & Siegel, Donald, 1991. "The Impact of R&D Investment on Productivity--New Evidence Using Linked R&D-LRD Data," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 203-229, April.
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    Cited by:

    1. Cervellati, Matteo & Sunde, Uwe, 2007. "Human Capital, Mortality and Fertility: A Unified Theory of the Economic and Demographic Transition," IZA Discussion Papers 2905, Institute for the Study of Labor (IZA).
    2. Francesco Lancia & Giovanni Prarolo, 2012. "A politico-economic model of aging, technology adoption and growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(3), pages 989-1018, July.
    3. Dirk Czarnitzki & Katrin Hussinger & Cédric Schneider, 2011. "Commercializing academic research: the quality of faculty patenting," Industrial and Corporate Change, Oxford University Press, vol. 20(5), pages 1403-1437, October.
    4. Peter Kotzian, 2004. "Pharmaceutical R&D in the Setting of Incomplete European Integration," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 11(2), pages 175-195.
    5. Toole, Andrew A. & Czarnitzki, Dirk, 2007. "Life Scientist Mobility from Academe to Industry: Does Academic Entrepreneurship Induce a Costly ?Brain Drain? on the Not-for-Profit Research Sector?," ZEW Discussion Papers 07-072, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Keith Blackburn & Rashmi Sarmah, 2008. "Corruption, development and demography," Economics of Governance, Springer, vol. 9(4), pages 341-362, October.
    7. James W. Hughes & Michael J. Moore & Edward A. Snyder, 2002. ""Napsterizing" Pharmaceuticals: Access, Innovation, and Consumer Welfare," NBER Working Papers 9229, National Bureau of Economic Research, Inc.
    8. Matteo Cervellati & Uwe Sunde, 2005. "Human Capital Formation, Life Expectancy, and the Process of Development," American Economic Review, American Economic Association, vol. 95(5), pages 1653-1672, December.
    9. Keith Blackburn & Rashmi Sarmah, 2005. "Corruption, Development and Demography," The School of Economics Discussion Paper Series 0532, Economics, The University of Manchester.
    10. James W. Shaw & William C. Horrace & Ronald J. Vogel, 2002. "The Productivity of Pharmaceuticals in Improving Health: An Analysis of the OECD Health Data," HEW 0206001, University Library of Munich, Germany, revised 11 May 2003.
    11. Lee G. Branstetter & Chirantan Chatterjee & Matthew Higgins, 2011. "Regulation and Welfare: Evidence from Paragraph IV Generic Entry in the Pharmaceutical Industry," NBER Working Papers 17188, National Bureau of Economic Research, Inc.
    12. Hartwig, Jochen, 2010. "Is health capital formation good for long-term economic growth? - Panel Granger-causality evidence for OECD countries," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 314-325, March.
    13. Cormac Ó Gráda, 2005. "The tortoise and the hare : economic growth in Britain and the Netherlands c.1500-1800," Working Papers 200524, School of Economics, University College Dublin.
    14. Joshua L. Krieger & Danielle Li & Dimitris Papanikolaou, 2018. "Developing Novel Drugs," NBER Working Papers 24595, National Bureau of Economic Research, Inc.
    15. K Blackburn & R Sarmah, 2005. "Public Expenditures, Bureaucratic Corruption and Economic Development," Centre for Growth and Business Cycle Research Discussion Paper Series 55, Economics, The Univeristy of Manchester.
    16. Cervellati, Matteo & Sunde, Uwe, 2002. "Human Capital Formation, Life Expectancy and the Process of Economic Development," IZA Discussion Papers 585, Institute for the Study of Labor (IZA).

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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