From Research to Returns: A Firm-Level Analysis of R&D and Productivity in the Human Health Industry

Abstract

In the rapidly evolving human health industry, the role of research and development (R&D) is pivotal. This study aims to investigate the relationship between R&D and labor productivity in the pharmaceutical, biotechnology, and medical device industries, collectively referred to as the human health industry. Utilizing a comprehensive dataset of 1,106 publicly traded firms with 5,457 observations from various countries between 2011 and 2018 available on the Medtrack proprietary database, we employ econometric techniques, including quantile regressions and dynamic panel estimation using the Generalized Method of Moments. Our findings reveal a positive and statistically significant relationship between R&D and productivity across the sample. Notably, this relationship is more pronounced in large firms based in Asia than in smaller firms in other regions. However, no significant differences in the intensity of this relationship were observed among the industries analyzed. Furthermore, our analysis indicates that R&D spending has an increasing marginal effect on productivity, suggesting that more productive companies experience a greater impact from R&D investment. The study offers robust results on the variable impacts of R&D investments on productivity, providing important insights for stakeholders and suggesting avenues for future research in driving innovation and growth in the human health industry.