Procurement Institutions and Essential Drug Supply in Low and Middle-Income Countries

Abstract

International procurement institutions have played an important role in drug supply. This paper studies price, delivery, and shipment time of essential drugs supplied in 106 developing countries from 2007-2017 across four procurement institution types. We find that pooled procurement institutions lower prices: pooling internationally is most effective for small buyers and more concentrated markets, and pooling within-country is most effective for large buyers and less concentrated markets. Pooling can reduce delays, but at the cost of longer anticipated shipment times. Finally, pooled procurement is more effective for older generation drugs, complementing IP licensing institutions that focus on newer, patented drugs. We corroborate the findings using multiple identification strategies, including an instrumental variable strategy as well as the Altonji-Elder-Taber-Oster method for selection on unobservables. Our results suggest that the optimal mixture of procurement institutions depends on the trade-off between costs and urgency of need, with pooled international procurement institutions particularly valuable when countries can plan well ahead of time.