Endogenous technological change in medicine and its impact on healthcare costs: evidence from the pharmaceutical market in Taiwan

Chee-Ruey Hsieh, Ya-Ming Liu and Chia-Lin Chang ()

MPRA Paper from University Library of Munich, Germany

Abstract: Although the technological change in medicine has been widely recognized as the major driver of rising healthcare costs, there is very little research that directly estimates this effect. This paper uses both a single-equation and a simultaneous equations approach to empirically investigate the interactive relationship between technological innovation and the growth of health expenditure in the context of the pharmaceutical market in Taiwan. Based on observing 182 therapeutic groups between 1997 and 2006, we find evidence to support the argument that technological innovation and health expenditure are simultaneously determined as technological innovation and the growth of health expenditure are endogenous rather than exogenous. Specifically, we find that therapeutic groups associated with higher pharmaceutical expenditure are likely to attract more new products to the market. Meanwhile, therapeutic groups with more new products are associated with higher pharmaceutical expenditures. An important implication of the paper is that the cost containment policy will not only affect the growth of health expenditure, but will also affect the progress of technological innovation in the health sector.

Keywords: Technological innovation; new drugs; health expenditure; simultaneous equation model (search for similar items in EconPapers)
JEL-codes: I11 I19 (search for similar items in EconPapers)
Date: 2011-11-25
New Economics Papers: this item is included in nep-hea and nep-ino
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Related works:
Journal Article: Endogenous technological change in medicine and its impact on healthcare costs: evidence from the pharmaceutical market in Taiwan (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:35147

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