Is There any Improvement in Total Factor Productivity Growth of Indian Pharmaceutical Industry after TRIPS Agreement? : Evidence from Biennial Malmquist Index

Authors

  • Dipyaman PAL Bethune College 181, Bidhan Sarani, Kolkata-700006 West Bengal, India
  • Chandrima CHAKRABORTY Vidyasagar University Midnapore, WestBengal, India
  • Arpita GHOSE Jadavpur University, Kolkata West Bengal, India

DOI:

https://doi.org/10.29015/cerem.546

Keywords:

Total Factor Productivity Growth (TFPG), TRIPS, Indian Pharmaceutical Industry, Data Envelopment Analysis (DEA), Biennial Malmquist Index

Abstract

Aim: Indian Pharmaceutical Industry (IPI) has undergone a massive makeover–from a modest beginning of “process patents regime” in the seventies to a modern and WTO compatible regime under the Trade Related Intellectual Property Rights System (TRIPS) in 2005. This paper estimates Total Factor Productivity Growth (TFPG) of Indian Pharmaceutical Industry (IPI) using firm level data from 2000 to 2013.

 

Design / Research methods: We have used nonparametric approach of Data Envelopment Analysis (DEA) using Biennial Malmquist Index.

 

Conclusions / findings: The results of estimation suggest an increase in overall TFPG of IPI after TRIPS agreement and also those vertically integrated firms involved in both bulk drugs production and formulation activities are less productive compared to firms that are involved in production of only bulk drug or formulation activity.

 

Originality / value of the article: This paper examines whether productivity of IPI has increased after 2005 i.e. after the period of TRIPS, by estimating TFPG for two sub-periods, i.e., from 2000 to 2005 and 2006 to 2013.

 

Implications of the research: The decomposition of TFPG suggests that for overall period 2000-2013, scale changes are the most important factor causing the productivity changes and among the other two alternative sources of TFPG, efficiency change dominates over technical changes. For the sub-period 2006-2013, the improvement in the scale efficiency may push the firms to a higher TFPG, whereas for 2000-2005 the better utilization of factors of production is the main driver of TFPG. A second stage panel regression suggests that R&D expenditure, Marketing expenditure, Market size, Capital-Labour ratio, import intensity and export intensity have positive and significant influence on TFPG.

Author Biographies

Dipyaman PAL, Bethune College 181, Bidhan Sarani, Kolkata-700006 West Bengal, India

Assistant Professor

Department of Economics

Bethune College

West Bengal, India

Chandrima CHAKRABORTY, Vidyasagar University Midnapore, WestBengal, India

Assistant Professor

Department of Economics with Rural Development

Vidyasagar University

Midnapore, WestBengal, India

Arpita GHOSE, Jadavpur University, Kolkata West Bengal, India

Professor

Department of Economics

Jadavpur University

References

Ahluwalia I.J. (1991), Productivity growth in Indian manufacturing, Oxford University Press, New Delhi.

Balassa B. (1988), Outward orientation, in: Handbook of development economics, Chenery H., Srinivasan T.N. (ed.), vol. 2, Elsevier, New York, pp. 1645-1689.

Bandyopadhyay S. (2000), Impact of efficiency indicators on the growth of productivity. A survey and empirical evidence from India, „Margin”, vol. 33 no. 1, pp. 84-98.

Banker R.D., Charnes A., Cooper W.W. (1984), Some models for estimating technical and scale efficiencies in Data Envelopment Analysis, „Management Science”, vol. 30 no. 9, pp. 1078-1092.

Barro R.J., Sala-i-Martin X. (1995), Economic growth, McGraw-Hill, New York.

Caves D., Laurits W., Christensen R., Diewert W.E. (1982), The economic theory of index numbers and the measurement of input, output and productivity, „Econometrica”, vol. 50 no. 6, pp. 1393-1414.

Chandrasekhar C.P., Purkayastha P. (1982), Transfer pricing in the Indian drug industry. An estimate and it’s implications, „Social Scientist”, vol. 10 no. 1, pp. 3-10.

Charnes A., Cooper W.W., Rhodes E.L. (1978), Measuring the efficiency of decision-making units, „European Journal of Operational Research”, vol. 2 no. 6, pp. 429-444.

Charnes A., Cooper W.W., Rhodes E.L. (1981), Evaluating program and managerial efficiency – an application of Data Envelopment Analysis to Program Follow Through, „Management Science”, vol. 27 no.6, pp. 668-697.

Chaudhuri S. (2005), The WTO and India’s pharmaceuticals industry. Patent protections, TRIPS and developing countries, Oxford University Press, New Delhi.

Chaudhuri S. (2012), Multinationals and monopolies. Pharmaceutical industry in India after TRIPS, „Economic & Political Weekly”, vol. 47 no. 12, pp. 46-54.

Cohen W.M., Levinthal D.A. (1989), Innovation and learning. Two faces of R&D, „Economic Journal”, no. 99, pp. 569-596.

Färe R., Grosskopf S., Lindgren B., Roos P. (1992), Productivity changes in Swedish pharmacies 1980-89. A non-parametric Malmquist approach, „Journal of Productivity Analysis”, vol. 3 no. 1/2, pp. 85-101.

Färe R., Grosskopf S., Norris M., Zhang P. (1994), Productivity growth, technical progress and efficiency changes in industrial countries, „American Economic Review”, vol. 84 no. 1, pp. 66-83.

Ghose A., Chakraborty C. (2012), Total factor productivity growth in pharmaceutical industry. A look using modern time series approach with Indian data, „The Journal Of Industrial Statistics”, vol. 1 no. 2, pp. 250-268.

Goldar B., Ranganathan V.S., Banga R. (2004), Ownership and efficiency in engineering firms, 1990-91 to 1999-2000, „Economic and Political Weekly”, vol. 39 no. 5, pp. 441-447.

Grossman G., Helpman E. (1990a), Comparative advantage and long run growth, „American Economic Review”, vol. 80 no. 4, pp. 796-815.

Grossman G., Helpman E. (1990b), Trade, innovation and growth, „American Economic Review”, vol. 80 no. 2, pp. 86-91.

Grossman G., Helpman E. (1991), Innovation and growth in the global economy, The MIT Press, Cambridge.

Kalani S. (2011), Emerging role of IT in Indian pharmaceutical industry and its implications for the education system, „Pharma Times”, vol. 43 no. 5, pp. 25-27.

Kamiike A., Sato T., Aggarwal A. (2012), Productivity dynamics in the Indian pharmaceutical industry. Evidences from plant-level panel data, „Science, Technology and Society”, vol. 17 no. 3.

Kao L.-J., Chiu Ch.-Ch., Gilbride T.J., Greg T.O., Allenby M. (2006), A direct approach to evaluating technical and allocative efficiency in marketing, Fisher College of Business, Ohio State University, www.stat.osu.edu/~amd/papers/Efficiency.pdf [08.09.2018].

Katz J.M. (1969), Production function, foreign investment and growth, North-Holland Publishing Company, Amsterdam.

Kendrick J.W. (1973), Post war productivity trends in the United States, 1947-1969, National Bureau of Economic Research, New York.

Kumar N. (2001), WTO regime, host country policies and global patterns of MNE activity. Recent quantitative studies and India’s strategic response, „Economic and Political Weekly”, vol.36 no.1, pp 39-50.

Lalitha N. (2002), Indian pharmaceutical industry in WTO regime. A SWOT analysis, „Economic and Political Weekly”, vol. 37 no. 34, pp. 3542-3555.

Lall S. (2000), Technological change and industrialization in the Asian newly industrializing economies, in: Technology, learning, and innovation. Experiences of newly industrializing economies, Kim L., Nelson R.R. (ed.), Cambridge University Press, Cambridge, pp. 13-68.

Madanmohan T.R. (1997), Exit strategies. Experience of Indian pharmaceutical firms, „Economic and Political Weekly”, vol. 32 no.48, pp. 107-110.

Mazumder M., Rajeev M., Ray S.C. (2012), Sources of heterogeneity in the efficiency of Indian pharmaceutical firms, „Indian Economic Review”, vol. 47 no. 2, pp. 191-221.

Nagarajan M., Barthwal R.R. (1990), Profitability and structure. A firm level study of the Indian pharmaceutical industry, „Indian Economic Journal”, vol. 38 no. 2, pp. 70-81.

Pannu H.S., Kumar U.D., Farooquie J.A. (2010), Impact of innovation on the performance of Indian pharmaceutical industry using Data Envelopment Analysis, IIM Bangalore Research Paper no. 302.

Pastor J.T., Asmild M., Lovell C. (2011), The biennial Malmquist productivity change index, „Socio-Economic Planning Sciences”, vol. 45 no. 1, pp. 10-15.

Raut L.K., Srinivasan T.N. (1993), Theories of economic growth, old and new, in: Capital investment and development, Basu K., Majumdar M., Mitra T. (ed.), Basil Blackwell, New York.

Ray S.C. (1997), Regional variation in productivity growth in Indian manufacturing. A nonparametric analysis, „Journal of Quantitative Economics”, vol. B no.1, pp. 73-94.

Ray S.C. (2006), The changing role of technological factors in explaining efficiency in Indian firms, „Journal of Developing Areas”, vol. 40 no. 1, pp. 127-140.

Ray S.C., Desli E. (1997), Productivity growth, technical progress, and efficiency change in industrialized countries. Comment, „The American Economic Review”, vol. 87 no. 5, pp. 1033-1039.

Saranga H., Banker R.D. (2010), Productivity and technical changes in the Indian pharmaceutical industry, „Journal of the Operational Research Society”, vol. 61 no. 12, pp. 1777-1788.

Sheth J.N., Sisodia R.S. (2002), Marketing productivity. Issues and analysis, „Journal of Business Research”, vol. 55 no. 5, pp. 349-362.

Singh N. (1989), Trade behaviour of firms. An empirical study of the size and foreign collaboration effects, „Indian Economic Review”, vol. 24 no. 1, pp. 45-65.

Tybout J.R. (2000), Manufacturing firms in developing countries. How well do they do and why? „Journal of Economic Literature”, vol. 38 no. 1, pp. 11-44.

Downloads

Published

2018-09-27

Issue

Section

Articles