IDEAS home Printed from
   My bibliography  Save this paper

The impact of public basic research on industrial innovation: Evidence from the pharmaceutical industry


  • Toole, Andrew A.


While most economists believe that public scientific research fuels industry innovation and economic growth, systematic evidence supporting this relationship is surprisingly limited. In a recent study, Acemoglu and Linn (2004) identified market size as a significant driver of drug innovation in the pharmaceutical industry, but they did not find any evidence supporting science-driven innovation from publicly funded research. This paper uses new data on biomedical research investments by the U.S. National Institutes of Health (NIH) to examine the contribution of public research to pharmaceutical innovation. The empirical analysis finds that both market size and NIH funded basic research have economically and statistically significant effects on the entry of new drugs with the contribution of public basic research coming in the earliest stage of pharmaceutical drug discovery. The analysis also finds a positive return to public investment in basic biomedical research.

Suggested Citation

  • Toole, Andrew A., 2011. "The impact of public basic research on industrial innovation: Evidence from the pharmaceutical industry," ZEW Discussion Papers 11-063, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:11063

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Malo, Stéphane, 2009. "The contribution of (not so) public research to commercial innovations in the field of combinatorial chemistry," Research Policy, Elsevier, vol. 38(6), pages 957-970, July.
    2. Bronwyn H. Hall & Clint Cumminq & Elizabeth S. Laderman & Joy Mundy, 1988. "The R&D Master File Documentation," NBER Technical Working Papers 0072, National Bureau of Economic Research, Inc.
    3. Salter, Ammon J. & Martin, Ben R., 2001. "The economic benefits of publicly funded basic research: a critical review," Research Policy, Elsevier, vol. 30(3), pages 509-532, March.
    4. Mansfield, Edwin, 1998. "Academic research and industrial innovation: An update of empirical findings1," Research Policy, Elsevier, vol. 26(7-8), pages 773-776, April.
    5. Wooldridge, Jeffrey M., 1991. "On the application of robust, regression- based diagnostics to models of conditional means and conditional variances," Journal of Econometrics, Elsevier, vol. 47(1), pages 5-46, January.
    6. Mansfield, Edwin, 1991. "Academic research and industrial innovation," Research Policy, Elsevier, vol. 20(1), pages 1-12, February.
    7. Blundell, Richard & Griffith, Rachel & Windmeijer, Frank, 2002. "Individual effects and dynamics in count data models," Journal of Econometrics, Elsevier, vol. 108(1), pages 113-131, May.
    8. Henderson, Rebecca., 1994. "The evolution of integrative capability : innovation in cardiovascular drug discovery," Working papers 3711-94., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    9. Jones, Charles I., 2005. "Growth and Ideas," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 16, pages 1063-1111 Elsevier.
    10. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G. & Lasagna, Louis, 1991. "Cost of innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 10(2), pages 107-142, July.
    11. Beise, Marian & Stahl, Harald, 1999. "Public research and industrial innovations in Germany," Research Policy, Elsevier, vol. 28(4), pages 397-422, April.
    12. Klevorick, Alvin K. & Levin, Richard C. & Nelson, Richard R. & Winter, Sidney G., 1995. "On the sources and significance of interindustry differences in technological opportunities," Research Policy, Elsevier, vol. 24(2), pages 185-205, March.
    13. Jaffe, Adam B, 1989. "Real Effects of Academic Research," American Economic Review, American Economic Association, vol. 79(5), pages 957-970, December.
    14. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1049-1090.
    15. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/generalized method of moments estimation and testing," Stata Journal, StataCorp LP, vol. 7(4), pages 465-506, December.
    16. Cockburn, Iain M & Henderson, Rebecca M, 1998. "Absorptive Capacity, Coauthoring Behavior, and the Organization of Research in Drug Discovery," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 157-182, June.
    17. Wiggins, Steven N, 1981. "Product Quality Regulation and New Drug Introductions: Some New Evidence from the 1970s," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 615-619, November.
    18. Anthony Arundel & Aldo Geuna, 2004. "Proximity and the use of public science by innovative European firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(6), pages 559-580.
    19. Rebecca Henderson & Iain Cockburn, 1993. "Scale, Scope and Spillovers: The Determinants of Research Productivity in the Pharmaceutical Industry," NBER Working Papers 4466, National Bureau of Economic Research, Inc.
    20. Blundell, Richard & Griffith, Rachel & Van Reenen, John, 1995. "Dynamic Count Data Models of Technological Innovation," Economic Journal, Royal Economic Society, vol. 105(429), pages 333-344, March.
    21. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Applications to Poisson Models," Econometrica, Econometric Society, vol. 52(3), pages 701-720, May.
    22. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
    23. Aghion, Philippe & Howitt, Peter, 2005. "Growth with Quality-Improving Innovations: An Integrated Framework," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 2, pages 67-110 Elsevier.
    24. Monjon, Stephanie & Waelbroeck, Patrick, 2003. "Assessing spillovers from universities to firms: evidence from French firm-level data," International Journal of Industrial Organization, Elsevier, vol. 21(9), pages 1255-1270, November.
    25. Zvi Griliches, 1958. "Research Costs and Social Returns: Hybrid Corn and Related Innovations," Journal of Political Economy, University of Chicago Press, vol. 66, pages 419-419.
    26. Iain M. Cockburn, 2007. "Is the Pharmaceutical Industry in a Productivity Crisis?," NBER Chapters,in: Innovation Policy and the Economy, Volume 7, pages 1-32 National Bureau of Economic Research, Inc.
    27. Scherer, F. M. & Harhoff, Dietmar, 2000. "Technology policy for a world of skew-distributed outcomes," Research Policy, Elsevier, vol. 29(4-5), pages 559-566, April.
    28. repec:dau:papers:123456789/13785 is not listed on IDEAS
    29. Adams, James D, 1990. "Fundamental Stocks of Knowledge and Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 673-702, August.
    30. Iain M. Cockburn & Rebecca M. Henderson, 2001. "Publicly Funded Science and the Productivity of the Pharmaceutical Industry," NBER Chapters,in: Innovation Policy and the Economy, Volume 1, pages 1-34 National Bureau of Economic Research, Inc.
    31. Rodrigo Cerda, 2007. "Endogenous innovations in the pharmaceutical industry," Journal of Evolutionary Economics, Springer, vol. 17(4), pages 473-515, August.
    32. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
    33. Toole, Andrew A, 2007. "Does Public Scientific Research Complement Private Investment in Research and Development in the Pharmaceutical Industry?," Journal of Law and Economics, University of Chicago Press, vol. 50(1), pages 81-104, February.
    34. Narin, Francis & Hamilton, Kimberly S. & Olivastro, Dominic, 1997. "The increasing linkage between U.S. technology and public science," Research Policy, Elsevier, vol. 26(3), pages 317-330, October.
    35. Grabowski, Henry G. & Vernon, John M., 1994. "Returns to R&D on new drug introductions in the 1980s," Journal of Health Economics, Elsevier, vol. 13(4), pages 383-406.
    36. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Jimmy Le, 2014. "Financing Sustainable Drug Development for Neglected Diseases: A Case of Push-Pull Mechanisms and Global Public Goods," The Economic and Social Review, Economic and Social Studies, vol. 45(2), pages 245-259.
    2. Mathies, Charles & Slaughter, Sheila, 2013. "University trustees as channels between academe and industry: Toward an understanding of the executive science network," Research Policy, Elsevier, vol. 42(6), pages 1286-1300.

    More about this item


    R&D; NIH; social return; biomedical; research lags; public science; new molecular entities;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:11063. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.