R&D investment and total factor productivity in China’s pharmaceutical industry: The moderating effect of the centralized procurement policy
Xiujuan Li, Jiachun Xu
TL;DR
This paper studies how China's centralized procurement policy affects pharmaceutical R&D investment and productivity.
Contribution
It reveals how the policy shortens the delayed impact of R&D on productivity and varies by company financing constraints.
Findings
The centralized procurement policy reduces the lagged effect of R&D investment on total factor productivity.
Firms with financing constraints increase R&D investment more under the policy.
The policy strengthens the link between R&D and productivity, especially for financially constrained firms.
Abstract
We use the implementation of China’s centralized procurement policy as a quasi-natural experiment to examine the effects of China’s centralized procurement policy on pharmaceutical research and development (R&D) investment and total factor productivity (TFP). Empirical findings demonstrate that the positive impact of R&D investment on TFP has a delayed effect in the pharmaceutical sector. The centralized procurement policy shortens this lagged effect by imposing survival pressure and pushing companies to enhance their R&D investment intensity significantly. From the heterogeneity perspective, for companies facing significant financing constraints, the centralized procurement policy significantly enhances the intensity of R&D investment. In contrast, for companies with weaker finance limitations, the impact of the policy on their R&D investment intensity is insignificant. Still, the…
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Taxonomy
TopicsInnovation Policy and R&D · Pharmaceutical Economics and Policy · Public Procurement and Policy