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FROM THE FIELD

Probing The Link Between Gross Profitability And R&D Spending

In his paper F.M. Scherer examines the relationship between pharmaceutical profits and research and development (R&D) investment using time-series industry-level data. He finds an apparently highly significant positive correlation between the two variables (both measured as deviations from trend). While I (and I believe most economists) would expect there to be a link between profitability and R&D investment, it is a link different from the one that Scherer examines. I fear that his analysis captures only part of the nexus of profits and R&D, but not the most important part.

Scherer examines the contemporaneous relationship between pharmaceutical profits and R&D . . . [Full Text of this Article]

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