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PARALLEL IMPORTS AND INNOVATION IN AN EMERGING ECONOMY: THE CASE OF INDIAN PHARMACEUTICALS

โœ Scribed by Andrea Mantovani; Alireza Naghavi

Publisher
John Wiley and Sons
Year
2011
Tongue
English
Weight
423 KB
Volume
21
Category
Article
ISSN
1057-9230

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โœฆ Synopsis

SUMMARY

This paper studies the impact of the reโ€importation of imitated pharmaceuticals as a byโ€product of an open policy toward parallel import (PI) on process innovation. Foreign investment by a firm to exploit a new unregulated market with weak intellectual property rights can give rise to imitation. These products can potentially reโ€enter the original country when PI is allowed influencing research and development (R&D) incentives. In an emerging economy with technologically heterogeneous firms, trade costs shift PIโ€related market share losses from the more to the less R&D efficient firm, inducing the former to strategically increase R&D. PI accompanied by tariffs also induces higher R&D effort by the technologically inferior firm when it results in an expansion of its sales abroad. A tariff on PI is most likely to increase welfare when the technological gap between the two firms at home is sufficiently large. Copyright ยฉ 2011 John Wiley & Sons, Ltd.

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