How Does Stronger Protection of Intellectual Property Rights Affect National Pharmaceutical Expenditure? An Analysis of OECD Countries.

Intellectual property rights (IPR) protection for pharmaceuticals has been comprehensive and strict since the establishment of the World Trade Organization in 1995 and the subsequent implementation of the TRIPS Agreement. This study investigated the relationship between the level of IPR and national pharmaceutical expenditure using panel data of 22 OECD countries from 1970 to 2009. The patent index was used to measure the level of national protection for IPR along with other covariates: GDP per capita, the percentage of population aged over 65, number of doctors, proportion of public financing among total pharmaceutical expenditure, under-5 mortality, price index, and period indicators. The regression analysis results showed that the level of IPR protection was significantly correlated with pharmaceutical spending even after controlling for various factors that affect pharmaceutical expenditure. The results were consistent in OLS regression and GLS regression. However, the effect of IPR was stronger and more significant in countries with a relatively small-sized pharmaceutical market than in those with big market. Many developed countries incur a financial burden due to rapidly growing pharmaceutical expenditure; therefore, the results of this study present the possibility that stronger IPR would produce welfare loss in developed countries.