Investments in Pharmaceuticals Before and After TRIPS

We examine the relationship between patent protection for pharmaceuticals and investment in development of new drugs. Patent protection has increased around the world as a consequence of the TRIPS Agreement, which specifies minimum levels of intellectual property protection for members of the World Trade Organization. It is generally argued that patents are critical for pharmaceutical research efforts, and so greater patent protection in developing and least-developed countries might result in greater effort by pharmaceutical firms to develop drugs that are especially needed in those countries. Since patents also have the potential to reduce access to treatments through higher prices, it is imperative to assess whether the benefits of increased incentives have materialized in research on diseases that particularly affect the poor. We find that patent protection is associated with increases in research and development (R&D) effort when adopted in high income countries. However, the introduction of patents in developing countries has not been followed by greater investment. Particularly for diseases that primarily affect the poorest countries, our results suggest that alternative mechanisms for inducing R&D may be more appropriate than patents.