Does China's centralized volume-based drug procurement policy facilitate the transition from imitation to innovation for listed pharmaceutical companies? Empirical tests based on double difference model

Introduction: The normalized implementation of the centralized volume-based procurement policy for pharmaceuticals is a concerted push for supply-side structural reform of the pharmaceutical industry in China. The impact of the centralized drug procurement policy on pharmaceutical companies' transition from imitation to innovation is investigated to test whether a positive effect occurs in the innovation landscape of the pharmaceutical market. Methods: The double difference method and a series of robustness tests were used based on data from a sample of listed pharmaceutical companies in Shanghai and Shenzhen A-shares between 2015 and 2021. Results: The study found that the centralized drug procurement policy significantly contributed to the increased intensity of innovation input in the Chinese pharmaceutical industry. In terms of regional and firm nature heterogeneity, it was found that firms in the seven provinces belonging to the three economic regions had a better increase in innovation input intensity than other regions. Firms of state-owned nature had a better increase in innovation input intensity than private companies. The mechanism test found a partial mediating effect of nearly 10% for the cost of sales rate on the innovation input intensity of listed companies and a negative mediating effect on corporate operating profit. Discussion: Further research found that the effect of centralized drug procurement policy on the improvement of innovation quality of listed pharmaceutical companies was evident. The innovation development of Chinese pharmaceutical companies no longer focused on the accumulation of innovation quantity.

Does PM2.5 (Pollutant) Reduce Firms' Innovation Output?

The potentially serious economic consequences of China's severe air pollution problem cannot be overlooked, especially the impact on corporate innovation, which is a core driver guiding firms towards efficient and high-quality development. This paper explores the direct effect and mechanism of PM2.5 on firms' innovation output through the identification strategy of instrument variable. Based on the data of Listed Companies in China from 2003 to 2016, we used thermal inversion as the instrument variable for PM2.5 for estimation. The results show that each 1 ug/m3 increase in PM2.5 concentration causes an average reduction in innovation output of listed companies by about 7.0%. The test of "Porter hypothesis" shows that environmental regulation has not encouraged firms to innovate more. We further used the 2013 China Social Survey (CSS) data to verify the human capital mechanism of PM2.5 affecting firm innovation at micro level. The results show that PM 2.5 deteriorates the healthy human capital in a firm, which reduces the innovation output. This article helps to understand the relationship between air pollution and firms' innovation and to develop appropriate policies.