The impact of the centralized volume-based procurement policy on Chinese pharmaceutical manufacturing firms’ R&D investment: A difference-in-differences approach

Abstract

Centralized drug procurement is a common practice worldwide to relieve the healthcare burden and promote high-quality development in the pharmaceutical industry. However, scholars have not yet reached an agreement on whether centralized procurement can facilitate the innovation activities of pharmaceutical firms. China’s centralized volume-based procurement (CVBP) implemented in 2018 provides an ideal quasi-natural experiment to evaluate the effect of centralized procurement on the R&D investment of the firms. Drawing data from listed manufacturing firms in China’s A-share market (2015–2020), the results from a difference-in-differences analysis with different model specifications indicate that the CVBP significantly promotes the pharmaceutical manufacturing firms’ R&D investment. Moreover, the positive effect of the CVBP on R&D investment is stronger in pharmaceutical manufacturing firms with high marketing expenses. A series of robustness tests including the parallel trend test, placebo test, and the PSM-DID analysis show that our findings are solid. This paper advances our understanding of centralized procurement in emerging markets and provides new insights into how governments and pharmaceutical manufacturing firms can strengthen innovation.