Private and Social Returns to R&D: Drug Development and Demographics
Investment in intangible capital—in particular, research and development—increased dramatically since the 1990s. However, productivity growth remains sluggish in recent years. One potential reason is that a significant share of the increase in intangible investment is geared toward consumer products such as pharmaceutical drugs with limited spillovers to productivity. We document that a significant share of R&D spending in the U.S. is done by pharmaceutical firms and is geared to developing drugs for the older patients. Increased life expectancy and quality of life among the elderly increases welfare but may not be reflected in estimates of total factor productivity.
We thank AEA session participants and Heidi Williams for helpful comments. Bryce Turner provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.