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Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe

Author

Listed:
  • Pamina Koenig

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université)

  • Megan Macgarvie

    (NBER - The National Bureau of Economic Research, BU - Boston University [Boston])

Abstract
This paper examines the relationship between cross-country differences in drug price regulation and the location of biopharmaceutical Foreign Direct Investment (FDI) in Europe. Simple theory predicts that price regulation in one country might affect total investment, but not the location of that investment, if sales are global. Nevertheless, some manufacturers threaten that the introduction of price regulation in a country will motivate them to move their investments to other countries. Are such threats cheap talk, or is there evidence that firms avoid price-controlling countries when making FDI location choices? We use data on 527 investments initiated in 27 European countries between 2002 and 2009 and find that investors are less likely to choose countries with price controls, after controlling for other determinants of investment. We also observe a relative decline in investment in countries that increased the stringency of regulatory regimes during our sample period. The effect is restricted to non-manufacturing investments and is most robust for those related to administrative functions.

Suggested Citation

  • Pamina Koenig & Megan Macgarvie, 2011. "Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe," PSE-Ecole d'économie de Paris (Postprint) halshs-00754522, HAL.
    • Handle: RePEc:hal:pseptp:halshs-00754522
    DOI: 10.1016/j.jhealeco.2011.07.005
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    References listed on IDEAS

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    Cited by:

    1. Jonathan Jones, 2017. "Agglomeration economies and the location of foreign direct investment: A meta-analysis," Journal of Regional Science, Wiley Blackwell, vol. 57(5), pages 731-757, November.
    2. Ake Blomqvist & Colin Busby & Don Husereau, 2013. "Capturing Value from Health Technologies in Lean Times," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 396, December.
    3. Stojchevska, Ivana & Baftijari, Agon, 2015. "The Impact of Governmental Policy on R&D Projects in the Pharmaceutical Industry," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2015), Kotor, Montengero, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Kotor, Montengero, 10-11 September 2015, pages 72-79, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    4. Stephan Eger & Jörg Mahlich, 2014. "Pharmaceutical regulation in Europe and its impact on corporate R&D," Health Economics Review, Springer, vol. 4(1), pages 1-9, December.
    5. Amelia Compagni & Claudio Jommi, 2016. "Attrarre investimenti per la ricerca clinica e sanitaria," MECOSAN, FrancoAngeli Editore, vol. 2016(99), pages 109-115.
    6. Abecassis, Philippe & Coutinet, Nathalie, 2015. "Médicaments génériques : pivot de la reconstruction de l’industrie pharmaceutique," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 17.
    7. Bailey, Nicholas, 2018. "Exploring the relationship between institutional factors and FDI attractiveness: A meta-analytic review," International Business Review, Elsevier, vol. 27(1), pages 139-148.

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    More about this item

    Keywords

    Discrete choice model; Price regulations; Location choices; Pharmaceutical industry;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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