Governance, Regulation and Innovation

Governance, Regulation and Innovation

Theory and Evidence from Firms and Nations

Edited by Mehmet Ugur

This book aims to disentangle the complex relationship between innovation and its potential determinants, paying special attention to the roles of governance and regulatory frameworks, and the ways in which the latter interact with other drivers of innovation such as competition and the innovator’s closeness to the technology frontier.

Chapter 8: Does regulation affect innovation and technical production efficiency? Evidence from the global pharmaceutical industry

Eshref Trushin

Subjects: business and management, corporate governance, economics and finance, corporate governance, economics of innovation, industrial economics, institutional economics, innovation and technology, economics of innovation


There is growing evidence that the European pharmaceutical industry is lagging behind that of the United States in terms of research and development (R & D) expenditures, biotech innovations, and number of blockbuster drugs. Three decades ago about two-thirds of all pharmaceutical innovations took place in Europe, whereas it accounts for less than 40 per cent at the present time (Schwitzer 2006: 167, 239). The average share of new molecular drugs in total increased from 30 per cent in 1995 to 53 per cent in 2005 in the USA, while in Western Europe this share decreased from 30 per cent to 10 per cent over the same period (Pammolli and Riccaboni, 2007: 130,133). Some authors blame pharmaceutical regulations, especially in Europe, for the productivity decline in the industry. For example, Reuben and Burstall (2005: xi, v) warn that ‘negative attitudes prevail toward science’ in Europe, that the ‘decline in products from Europe is the source of the discovery deficit’ and that the European industry may move to the USA. The relationship between pharmaceutical regulation and innovation is becoming especially interesting in the new era of austerity as governments around the world are trying to save extra on pharmaceutical procurement by introducing new cost-containing drug regulation. Will such budget cuts lead to stagnation in the drug R & D or affect efficiency of production? Can this new regulation have a long-lasting effect as a drug development takes many years and costs hundreds of million dollars?

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