The Pharmaceutical Industry

Abstract

FISHER and TEMIN (1973) have argued recently that many empirical studies1 relating to the Schumpeterian hypothesis are inappropriate for testing that hypothesis. They observe that Schumpeter can be interpreted as hypothesizing that the elasticity of the value of research and development (R and D) output with respect to firm size is greater than unity. On the other hand, the empirical studies have been concerned with investigating the elasticity of R and D inputs with respect to firm size. Fisher and Temin demonstrate that a finding that the R and D input elasticity exceeds unity does not imply that the R and D output elasticity exceeds unity also. Given that public policy formulation should be based on tests of the Schumpeter hypothesis rather than on tests of the R and D input elasticity, their point is well taken. Of course, in defense of the empirical studies, it can be argued that data limitations have restricted testing to the R and D input elasticity, and that most of the researchers have been aware that they were not testing the Schumpeter hypothesis.............