Firm-level productivity and its determinants in the Indian pharmaceutical industry

Abstract

This study attempts to examine the total factor productivity (TFP) of Indian pharmaceutical industry across different sizes of firms, and to identify the factors responsible for TFP variation. The study uses secondary data accessed from the Prowess IQ database for the period from 1995–1996 to 2019–2020, and employs parametric approach based on the estimation of the Cobb–Douglas production function to measure productivity. The analysis reveals that the overall productivity of Indian pharmaceutical firms has increased during the post-patent years. Comparison of TFP across different sizes of firms reveals that in both the pre-and post-patent periods, large firms exhibit higher productivity than their medium and smaller counterparts. Estimation of TFP growth shows that during the pre-patent period, all firms, irrespective of their sizes, have recorded negative growth rates. However, a positive turnaround is observed in the growth rates of all firms during the post-patent years. Econometric exercise shows that industrial concentration, age of the firm, firm-size, capital intensity, R&D intensity, export intensity, imported raw materials intensity, and profit intensity are the important variables exercising a significant influence on firm productivity, though their direction and strength of influence differ.