What Drives Innovation? Lessons from COVID-19 R&D

Ruchir Agarwal and Patrick Gaulé

No 14079, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: To examine the drivers of innovation, this paper studies the global R&D effort to fight the deadliest diseases and presents four results. We find: (1) global pharmaceutical R&D activity—measured by clinical trials—typically follows the 'law of diminishing efforts': i.e. the elasticity of R&D effort with respect to market size is about 1/2 in the cross-section of diseases; (2) the R&D response to COVID-19 has been a major exception to this law, with the number of COVID-19 trials being 7 to 20 times greater than that implied by its market size; (3) the aggregate short-term elasticity of science and innovation can be very large, as demonstrated by aggregate flow of clinical trials increasing by 38% in 2020, with limited crowding out of trials for non-COVID diseases; and (4) public institutions and government-led incentives were a key driver of the COVID-19 R&D effort—with public research institutions accounting for 70 percent of all COVID-19 clinical trials globally and being 10 percentage points more likely to conduct a COVID-19 trial relative to private firms. Overall, while economists are naturally in favor of market size as a driving force for innovation (i.e."if the market size is sufficiently large then innovation will happen"), our work suggests that scaling up global innovation may require a broader perspective on the drivers of innovation—including early-stage incentives, non-monetary incentives, and public institutions.

Keywords: market size; innovation; COVID-19; pharmaceutical industry (search for similar items in EconPapers)
JEL-codes: J24 O31 O38 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2021-01
New Economics Papers: this item is included in nep-ino, nep-lma and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - published in: Journal of Health Economics, 2022, 82, 102591

Downloads: (external link)
https://docs.iza.org/dp14079.pdf (application/pdf)

Related works:
Journal Article: What drives innovation? Lessons from COVID-19 R&D (2022)
Working Paper: What Drives Innovation? Lessons from COVID-19 R&D (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp14079

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().