Total Factor Productivity Growth of Indian Pharmaceutical Industry: A Non- Parametric Approach

Abstract

Indian pharmaceutical industry (IPI) has gone through sequence of changes right from licensing, regulation and process patent to delicensing, deregulation and product patent. The Product Patent Act in 2005, significantly altered the business environment. The present study is an attempt to estimate Total Factor Productivity Growth (TFPG) and to find out its enhancing factors employing firm level panel data for the period 2000-01 to 2015-16. Biennial Malmquist index of productivity by Data Envelopment Analysis and Panel Regression are used to achieve these objectives. It is found that there is 3% change in TFPG and rate of change of TFPG is 0.71% for the overall sample period. The result of TFPG decomposition shows that technical efficiency change is the prime source of productivity increase. It was determined that there exists nonlinear relationship between TFPG and the explanatory variables considered. Research and Development Intensity, market share and Advertising Intensity in the previous period are the factors that may encourage higher productivity growth. Whereas, increase in import relative to export may not be detrimental for productivity growth. The enactment of Product Patent Act is found to reduce TFPG compared to the process patent regime.