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Privacy Regulation and R&D Investments: Causal Evidence from Global Pharmaceutical and Biotechnology Firms

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  • Koski, Heli

Abstract

This paper examines the effects of data privacy regulation on R&D investment in the pharmaceutical and biotechnology sectors. In these industries, access to personal health data is essential for innovation, particularly in clinical research. Leveraging a firm-level panel of the world’s top R&D investors from 2013 to 2023, we exploit the staggered implementation of major data protection regimes to estimate their causal impact. Using a dynamic event-study design, we find that stricter privacy regulation leads to a significant decline in R&D spending. By year four after implementation, treated firms reduced R&D investment by approximately 39 percent. The effects are heterogeneous: firms without foreign affiliates and small and medium-sized enterprises experience larger declines. Our findings suggest that privacy regulation may constrain the foundations of data-driven innovation and shape the geographic distribution of R&D activity.

Suggested Citation

  • Koski, Heli, 2025. "Privacy Regulation and R&D Investments: Causal Evidence from Global Pharmaceutical and Biotechnology Firms," ETLA Working Papers 130, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:130
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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