What Drives Innovation? Lessons from COVID-19 R&D

Abstract

To examine the drivers of innovation, this paper studies the global R&D effort to fight the deadliest diseases and presents four results. We find: (1) global pharmaceutical R&D activity-measured by clinical trials-typically follows the 'law of diminishing effort': i.e. the elasticity of R&D effort with respect to market size is about ½ in the cross-section of diseases; (2) the R&D response to COVID-19 has been a major exception to this law, with the number of COVID-19 trials being 7 to 20 times greater than that implied by its market size; (3) the aggregate short-term elasticity of science and innovation can be very large, as demonstrated by aggregate flow of clinical trials increasing by 38% in 2020, with limited crowding out of trials for non-COVID diseases; and (4) public institutions and government-led incentives were a key driver of the COVID-19 R&D effort-with public research institutions accounting for 70 percent of all COVID-19 clinical trials globally and being 10 percentage points more likely to conduct a COVID-19 trial relative to private firms. Overall, while economists are naturally in favor of market size as a driving force for innovation (i.e."if the market size is sufficiently large then innovation will happen"), our work suggests that scaling up global innovation may require a broader perspective on the drivers of innovation-including early-stage incentives, non-monetary incentives, and public institutions.

R&D Investments, Debt Capital, and Ownership Concentration: A Three-Way Interaction and Lag Effects on Firm Performance in China's Pharmaceutical Industry

“…On the basis of model ( 1), to evaluate the moderating role on firm performance, we formulated the following model (2).…”

“…The coronavirus disease 2019 (COVID-19) pandemic underscored the importance of research and development (R&D) in the pharmaceutical industry. R&D plays a key role in responding to the COVID-19 outbreak and acts as a critical lever to ensure a sustainable and inclusive recovery while boosting the resilience of the socioeconomic system (1,2). The pharmaceutical industry devoted $186 billion dollars to R&D expenditure in 2019 (3).…”