Discussion Paper Details

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Title: Investments in Pharmaceuticals Before and After TRIPS

Author(s): Margaret K Kyle and Anita M McGahan

Publication Date: May 2011

Keyword(s): health, innovation, Intellectual property, pharmaceuticals and trade policy

Programme Area(s): Industrial Organization

Abstract: This paper addresses the relationship between patent protection and investment in the development of new pharmaceutical treatments. The TRIPS Agreement, which specifies minimum levels of intellectual property protection for countries in the World Trade Organization, has increased levels of patent protection around the world. Since patents also have the potential to reduce access to treatments through higher prices, it is imperative to assess whether wider use of patents has led to off-setting benefits, such as research on diseases that particularly affect the poor. Using variation across countries in the timing of patent laws and the severity of disease, we test the hypothesis that increased patent protection results in greater drug development effort. We find that patent protection in high income countries is associated with increases in research and development (R&D) effort; in other words, patent protection works in high-income countries to induce R&D. However, the introduction of patents in developing countries has not been followed by greater R&D investment in the diseases that are most prevalent there. Our results suggest that alternative mechanisms for inducing R&D may be more appropriate than patents for the "neglected" diseases that are concentrated in low-income countries.

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Bibliographic Reference

Kyle, M and McGahan, A. 2011. 'Investments in Pharmaceuticals Before and After TRIPS'. London, Centre for Economic Policy Research.