The Determinants of Pharmaceutical R&D Expenditures: Evidence from Japan
Jörg C. Mahlich & Thomas Roediger-Schluga
#2006-015
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) with a pooled data sample
of the 15 publicly listed Japanese drug firms for the period 1987 to
1998. As in the reference paper, 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.
Keywords: R&D, investment, panel data estimation, pharmaceuticals, Japan
JEL-classification: L65, O31, O33