PARALLEL IMPORTS AND INNOVATION IN AN EMERGING ECONOMY: THE CASE OF INDIAN PHARMACEUTICALS

Andrea Mantovani and Alireza Naghavi

Health Economics, 2012, vol. 21, issue 11, 1286-1299

Abstract: This paper studies the impact of the re‐importation of imitated pharmaceuticals as a by‐product of an open policy toward parallel import (PI) on process innovation. Foreign investment by a firm to exploit a new unregulated market with weak intellectual property rights can give rise to imitation. These products can potentially re‐enter the original country when PI is allowed influencing research and development (R&D) incentives. In an emerging economy with technologically heterogeneous firms, trade costs shift PI‐related market share losses from the more to the less R&D efficient firm, inducing the former to strategically increase R&D. PI accompanied by tariffs also induces higher R&D effort by the technologically inferior firm when it results in an expansion of its sales abroad. A tariff on PI is most likely to increase welfare when the technological gap between the two firms at home is sufficiently large. Copyright © 2011 John Wiley & Sons, Ltd.

Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:wly:hlthec:v:21:y:2012:i:11:p:1286-1299

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