DP8371 Investments in Pharmaceuticals Before and After TRIPS

Author(s): Margaret K Kyle, Anita M McGahan
Publication Date: May 2011
Keyword(s): health, innovation, Intellectual property, pharmaceuticals, trade policy
JEL(s): D22, F13, I11, L65
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8371

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.