Center–periphery Relationships of Pharmaceutical Value Chains: A Critical Analysis based on Goods and Knowledge Trade Flows

ABSTRACT

This article provides new evidence on center–periphery relationships in the pharmaceutical value chains from the new-structuralist perspective. Our contribution examines the foreign insertion of countries into pharmaceutical value chains. It is based on extensive indicators, such as world trade in gross terms, production and employment structure, and also on intensive indicators, such as trade in value-added, price per kilo of pharmaceuticals imported and exported, pharmaceutical industry wage shares, and intellectual property rights’ flows. We show that pharmaceutical value chains are concentrated in regions, whose centers are basically the US in America and Switzerland and Germany in Europe. Moreover, there are several countries from the global peripheries that are weakly integrated into pharmaceutical value chains, such as Brazil, Russia, Saudi Arabia. Finally, some countries, such as Mexico, India, Hungary, Poland, and even China, have undergone a maquiladora process in their roles in the international division of labor: they have become large exporters of pharmaceuticals with low prices per kilogram and a high content of imported added value, paying low salaries and maintaining deficits in intellectual property rights’ charges.

KEYWORDS:

• Global value chains
• pharmaceuticals
• transnational corporations
• international division of labor
• new-structuralism
• development

JEL CODES:

• f23
• f6
• o3
• o1

Acknowledgments

We thank the Editor and the Reviewers for their careful comments and thoughtful suggestions. The usual disclaimer appliers.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 According to Statista 2019a, global generic prescription drug revenue as a percentage of total prescription revenue increased from 8.1% in 2009 to 10.2% in 2016, and is expected to have increased to 11.1% by 2018.

2 Festel, Schicker, and Boutellier (2010) clarify that traditional pharmaceutical companies, which could be large (‘big pharma’) or mid-sized companies, normally cover the whole or most of the pharmaceutical value chain from drug discovery/ development up to production and marketing/ sales. A widely used term for this kind of company is ‘Fully Integrated Pharmaceutical Company’ (FIPCO). In contrast, emerging pharmaceutical companies focus on selected stages of the pharmaceutical value chain. Most of the biotechnology start-up companies or other technology driven companies with their roots in RandD are part of this group.

3 The balance of payments is basically a statistical statement that summarizes transactions between residents and non-residents of a specific economy during a period (a year, for example). It uses the double-entry accounting method (where a debit may have a credit counterpart, and vice versa). It has hundreds of data entries and is subdivided into several groups of accounts. The main ones are current account, capital account, and financial account.

4 UNIDO 2018 Indstat 4 Rev. 4 provides different coverage for countries in terms of years, sectors, and variables. Around 70 countries were tracked for pharmaceuticals, medicinal chemicals, etc. (ISIC 2100) value added, and employment, including most of the 26 leading exporters and importers (on average) between 2013–2015 - except China, Canada, and Russia.

5 The evidence presented in Kale and Little (2007, 607) ‘strongly suggests that the weak patent system was the dominant influence on the development of basic and intermediate capabilities in the Indian pharmaceutical industry. (…) The nature of the domestic market and industrial policies adopted by the Indian government also influenced the development of capabilities in the Indian pharmaceutical industry’.

6 Nonetheless, this may not be the case for APIs because India and China are important players in their GVCs (Patel 2018).

7 OECD definition for Foreign value-added share of gross exports: for domestic industry i in country c, EXGR_FVASH (c,i) is defined as foreign value added in dollars embodied in gross exports in dollars EXGR_FVA (c,i), as a percentage of total gross exports, EXGR (c,i).

8 N.i.e. stands for ‘not included elsewhere’ – by doing this, the IMF itself recognizes that payments from the use of intellectual property can be accounted for somewhere else in the BoP. Unfortunately, sectorial data is not available.

9 Developing countries in our sample follow UN categorization: Singapore, China, Brazil, India, Israel, Mexico, and Saudi Arabia (which does not report any data for this account).

Additional information

Funding

This work was supported by the People Programme (Marie Curie Actions) of the European Union’s Seventh Framework Programme (FP7/2007-2013) under REA Grant agreement no. 600209 (TU Berlin – IPODI); Coordenação de Aperfeiçoamento de Pessoal de Nível Superior/ Brazil (CAPES) – Finance Code 001; Fundação de Amparo à Pesquisa do Estado de São Paulo/ Brazil (FAPESP) [Grant Number 2016/ 25489-0]; and Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq) [Grant Number 426262/2016-6].