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What drives innovation? Lessons from COVID-19 R&D

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  • Agarwal, Ruchir
  • Gaule, Patrick

Abstract

This paper studies the global R&D effort to fight the deadliest diseases. We find: (1) the elasticity of R&D effort with respect to market size is about 1/2 in the cross-section of diseases; (2) given this elasticity, the R&D response to COVID-19 has been 4 to 26 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 the 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. Overall, our work suggests that leveraging early-stage incentives, non-monetary incentives, and public institutions may be important for scaling up global innovation.

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  • Agarwal, Ruchir & Gaule, Patrick, 2022. "What drives innovation? Lessons from COVID-19 R&D," Journal of Health Economics, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:jhecon:v:82:y:2022:i:c:s016762962200011x
    DOI: 10.1016/j.jhealeco.2022.102591
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    Cited by:

    1. Daniel P. Gross & Bhaven N. Sampat, 2022. "Crisis Innovation Policy from World War II to COVID-19," Entrepreneurship and Innovation Policy and the Economy, University of Chicago Press, vol. 1(1), pages 135-181.
    2. Heinrich, Torsten & Yang, Jangho, 2022. "Innovation in times of Covid-19," MPRA Paper 115809, University Library of Munich, Germany.
    3. Ruchir Agarwal & Tristan Reed, 2022. "Financing vaccine equity: funding for day-zero of the next pandemic," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 38(4), pages 833-850.
    4. Aggarwal, Mayank & Chakrabarti, Anindya S. & Chatterjee, Chirantan & Higgins, Matthew J., 2023. "Research and market structure: Evidence from an antibiotic-resistant pathogenic outbreak," Research Policy, Elsevier, vol. 52(1).
    5. Laura Grigolon & Laura Lasio, 2023. "Biased Beliefs and Stigma as Barriers to Treatment and Innovation Adoption," CRC TR 224 Discussion Paper Series crctr224_2023_277v2, University of Bonn and University of Mannheim, Germany.
    6. Torsten Heinrich & Jangho Yang, 2022. "Innovation in times of Covid-19," Papers 2212.14159, arXiv.org.
    7. Torsten Heinrich & Jangho Yang, 2022. "Innovation in times of Covid-19," Chemnitz Economic Papers 058, Department of Economics, Chemnitz University of Technology.
    8. Berkes, Enrico & Coluccia, Davide M. & Dossi, Gaia Greta & Squicciarini, Mara P., 2023. "Dealing with adversity: religiosity or science? Evidence from the great influenza pandemic," LSE Research Online Documents on Economics 121318, London School of Economics and Political Science, LSE Library.
    9. Jacques Bughin & Francis Hinterman & Sybille Berjoan, 2022. "A Good Crisis (not) Wasted: How Exploiting and Expanding Dynamic Capabilities Shape Corporate Performance During the Covid Pandemic," Working Papers TIMES² WP2022-051, ULB -- Universite Libre de Bruxelles.
    10. Enrico Berkes & Davide M. Coluccia & Gaia Dossi & Mara P. Squicciarini, 2023. "Dealing with adversity: Religiosity or science? Evidence from the great influenza pandemic," POID Working Papers 068, Centre for Economic Performance, LSE.
    11. Bryan, Kevin A. & Lemus, Jorge & Marshall, Guillermo, 2022. "R&D competition and the direction of innovation," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    12. Gentilini, Arianna & Miraldo, Marisa, 2023. "The role of patient organisations in research and development: Evidence from rare diseases," Social Science & Medicine, Elsevier, vol. 338(C).
    13. Haas, Christian & Kempa, Karol & Moslener, Ulf, 2023. "Dealing with deep uncertainty in the energy transition: What we can learn from the electricity and transportation sectors," Energy Policy, Elsevier, vol. 179(C).
    14. Enrico Berkes & Davide M. Coluccia & Gaia Dossi & Mara P. Squicciarini, 2023. "Dealing with adversity: religiosity or science? Evidence from the great influenza pandemic," CEP Discussion Papers dp1927, Centre for Economic Performance, LSE.
    15. Wen, Jun & Wang, Siqin & Yang, Xiuyun & Zhou, Xiaozhou, 2023. "Impacts of epidemics on innovation: An empirical analysis," Technovation, Elsevier, vol. 119(C).

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    More about this item

    Keywords

    COVID-19; Innovation; Market size; Pharmaceutical industry;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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