Growing Global: How Stronger Patent Laws Boosted India’s Pharmaceutical Exports

A surprising discovery about intellectual property rights challenges conventional wisdom about developing countries

The Conventional Wisdom Was Wrong

For years, experts assumed that stronger patent protection would hurt pharmaceutical exports from developing countries like India. The logic seemed straightforward: These countries built their pharmaceutical industries by copying existing drugs, so stricter patent laws should reduce their ability to compete globally.

But new research reveals a fascinating twist: When developing countries strengthen their patent laws, their pharmaceutical exports can actually increase significantly.

The Indian Pharmaceutical Journey

India provides a perfect case study. In 1970, India deliberately weakened its patent laws to help build its domestic pharmaceutical industry. This “soft patent” approach worked remarkably well:

• Industry growth accelerated to 17% annually in the 1990s
• Production rose from Rs. 168 crore in 1965 to Rs. 19,737 crore in 2000
• Indian companies gained 70-80% market share in bulk drugs and formulations
• The country went from being import-dependent to becoming a major exporter

The Big Question

Given this success through weak patent protection, many worried that India’s pharmaceutical exports would suffer when global intellectual property rights were strengthened through the TRIPS agreement. But what actually happened?

The Surprising Findings

Using sophisticated statistical analysis of India’s pharmaceutical exports to 106 countries, the research found that:

1. Stronger patent protection in importing countries actually increased Indian exports
2. The effect was statistically significant and substantial
3. When patent protection increased from minimum (0) to maximum (5) levels:
   • Base exports of $38,000 more than doubled to $82,000
   • Net increase averaged $44,000 per country
   • Effects were consistent across different types of markets

Why Did This Happen?

Several factors help explain these counterintuitive results:

1. Technological Maturity: Indian companies had developed significant R&D capabilities during the soft patent era
2. Process Innovation: Firms excelled at developing new manufacturing processes
3. Market Evolution: Companies began focusing more on innovation than imitation
4. Global Integration: Indian firms established international partnerships and ventures
5. Strategic Adaptation: Companies invested in R&D to compete in the new regime

Beyond Pharmaceuticals

The research suggests that the impact of patent protection depends heavily on where an industry stands relative to global technological frontiers. The pharmaceutical sector benefited because:

• Indian companies had built robust capabilities
• The technology gap with global leaders wasn’t too wide
• Firms had shifted toward innovation-based strategies
• The industry had strong export orientation

Key Takeaways

1. Policy Timing Matters: The sequence of soft then strong patent protection helped build a competitive industry
2. Innovation Capabilities: Companies need to develop R&D capacity before stronger patents become beneficial
3. Market Access: Stronger global patent rights can actually open up export opportunities
4. Strategic Evolution: Industries need to shift from imitation to innovation-based competition

Looking Ahead

This research suggests that developing countries shouldn’t automatically assume stronger patent protection will hurt their industries. The key is building innovative capabilities while patent protection is still limited, then using those capabilities to compete when protection increases.

For policymakers and business leaders in developing countries, the message is clear: Focus on building genuine technological capabilities rather than relying solely on imitation. When the rules of the game change, those capabilities become the foundation for continued success.

Academic Abstract:

This paper examines the impact of stronger protection for intellectual property on the exports of a technologically imitative country such as India. The Indian experience in pharmaceutical exports can further add to the existing literature, which is otherwise largely limited to the experience of OECD countries and the USA. The empirical analysis suggests that even an imitative developing country’s exports need not be negatively affected by strengthening patent regime globally, and in fact, in the case of pharmaceuticals, India stands to benefit from market expansion effects. However, this finding in the case of pharmaceutical products cannot be argued to hold for other sectors of the Indian economy, and any generalization on overall impact of stronger patent regime on aggregate exports from the Indian economy must be based on further sectoral studies.

Learn More:

Full citation: Pradhan, Jaya Prakash (2007), ‘Strengthening Intellectual Property Rights Globally: Impact on India’s Pharmaceutical Exports’, Singapore Economic Review, 52(2), pp. 233–250,Publisher: World Scientific Publishing Co. 

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