Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232831 
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14079
Publisher: 
Institute of Labor Economics (IZA), Bonn
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 efforts': i.e. the elasticity of R&D effort with respect to market size is about 1/2 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.
Subjects: 
COVID-19
innovation
market size
pharmaceutical industry
JEL: 
O31
O38
J24
Document Type: 
Working Paper

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