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

Heli Koski

No 130, ETLA Working Papers from The Research Institute of the Finnish Economy

Abstract: 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.

Keywords: Privacy regulation; R&D investment; Innovation; Pharmaceuticals; Biotechnology; Firm-level panel; GDPR; Compliance costs (search for similar items in EconPapers)
JEL-codes: D22 K23 L65 O32 O38 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2025-08-11
New Economics Papers: this item is included in nep-hea, nep-law, nep-sbm and nep-tid
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