Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe

Pamina Koenig and Megan MacGarvie

Journal of Health Economics, 2011, vol. 30, issue 5, 950-965

Abstract: This paper examines the relationship between cross-country differences in drug price regulation and the location of biopharmaceutical Foreign Direct Investment (FDI) in Europe. Simple theory predicts that price regulation in one country might affect total investment, but not the location of that investment, if sales are global. Nevertheless, some manufacturers threaten that the introduction of price regulation in a country will motivate them to move their investments to other countries. Are such threats cheap talk, or is there evidence that firms avoid price-controlling countries when making FDI location choices? We use data on 527 investments initiated in 27 European countries between 2002 and 2009 and find that investors are less likely to choose countries with price controls, after controlling for other determinants of investment. We also observe a relative decline in investment in countries that increased the stringency of regulatory regimes during our sample period. The effect is restricted to non-manufacturing investments and is most robust for those related to administrative functions.

Keywords: Pharmaceutical industry; Location choices; Price regulations; Discrete choice model (search for similar items in EconPapers)
JEL-codes: F23 I18 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe (2011)
Working Paper: Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:30:y:2011:i:5:p:950-965

DOI: 10.1016/j.jhealeco.2011.07.005

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