The Determinants of Pharmaceutical R&D Expenditures: Evidence from Japan

Jörg Mahlich () and Thomas Roediger-Schluga ()

Review of Industrial Organization, 2006, vol. 28, issue 2, 145-164

Abstract: During the past 20 years, the world pharmaceutical industry has experienced a dramatic increase in R&D intensity. We apply and extend a model developed by Grabowski and Vernon (2000, Journal of Evolutionary Economics, 10, 201–215) with a pooled data sample of the 15 publicly listed Japanese drug firms for the period 1987–1998. As in the original study, we find expected returns to be an important determinant of R&D spending in the Japanese drug industry, albeit considerably smaller than in the U.S., which is particularly obvious in the case of returns from newly introduced drugs. However, our results are sensitive to econometric model specification, in particular to controlling for serial correlation and to a dynamic specification of the baseline model. Likewise, estimates on financial constraints are sensitive to model specification, indicating that Japanese drug firms face small or no financial constraints. Our results are consistent with the general literature on R&D investment behaviour, yet raise some methodological questions with regard to the original study. Copyright Springer 2006

Keywords: investment; Japan; panel data estimation; pharmaceuticals; R&D; L65; O31; O33 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (20)

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DOI: 10.1007/s11151-006-0010-z

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