What Factors are Driving R&D in the Pharmaceutical Industry in India? A Study of the Post-Liberalization Period

There exist a significant number of studies to find the fundamental factors driving R&D in the Indian pharmaceutical industry. Firm size, firm age, export orientation, profits are some important determinants of pharma R&D found by earlier researchers. After liberalization of the Indian economy in 1991 and change in the Patent law as per WTO requirements in 1995, the determining factors of R&D in the pharmaceutical sector are expected to change significantly. This study intends to find the significant factors influencing the R&D status and the intensity of R&D expenditures in the subsequent period, in the framework of bivariate probit model and dynamic panel data model respectively. This study is based on an unbalanced panel of 150 listed firms covering the period 1995-2019. Unlike the earlier studies, market share and import intensity of capital goods have emerged as important factors driving innovation in the pharmaceutical industry in the post-liberalization period along with firm size and export intensity. Moreover, we observe that, both R&D and export are persistent activity and cross-persistence in R&D and export activity is there for full sample firms, large firms and mature firms. Important policy implications that emerge from this study are that the government should promote export of pharmaceutical products, liberalize import of capital goods for this sector and increased competition between firms has a hindering effect on R&D investment in the Indian pharmaceutical industry.