Efficiency and productivity analysis of Indian pharmaceutical industry using data envelopment analysis

Abstract

In this paper, we have used data envelopment analysis (DEA) models to analyse the relative efficiency and productivity change in Indian pharmaceutical industry (IPI) between 1998 and 2007 which covers the post-TRIPS (1995) and post Indian Patent Act Amendment (2005) period. BCC DEA model and Malmquist productivity index are used to estimate the relative efficiency and productivity change of Indian pharmaceutical companies over the 10 year period. We have proposed and tested several hypotheses on the average efficiency and the productivity change of IPI to check if the indigenous and multinational companies differ in their efficiency and productivity change over the aforementioned period. Also, we have analysed the effect of firm size on several performance measures. Exploring the relationship between DEA efficiency and innovation, we find that innovative firms with R&D and patents have higher efficiency than non-innovative firms.