NERI Seminar: The Impact on National Income of the Patent-Cliff
Posted on February 19, 2014
Today's NERI seminar in the INTO Learning Centre focussed on the impact of the patent cliff on economic and fiscal activity In Ireland. Shane Enright and Mary Dalton gave a detailed overview of their recent paper on the subject. Mary and Shane both work in the Department of Finance. Previously, Mary worked in Forfás and completed a M. Sc. in Economic Policy Studies in Trinity. Shane is currently involved in producing economic forecasts for the Department, among other areas of work.
Given the weight of the pharmaceutical sector in Irish GDP, this paper seeks to assess the impact of the current ‘patent cliff’ in the pharmaceutical sector on the Irish economy. Ireland has a well-established specialisation in pharma-chem production, with nine of the top ten multinational corporations located in Ireland. The sector accounts for approximately a quarter of total Irish exports though, due to its knowledge-intensive nature, its employment share and the labour income share in value add terms is relatively modest by comparison.
The clustering of a number of patented drugs going off patent in quick succession is having an impact on pharma-chem output in Ireland. Both output and exports are down from their mid-2012 peaks, although the headline impact is likely to be offset to an (uncertain) extent by reduced imports of royalties.
This paper sets out a number of simulations which use various export declines and import responses and suggests a net impact of a loss of 2 to 4 percentage points from GDP over a four-year horizon, depending on assumptions used. Corporation tax would probably reduce due to lower profitability in the sector. These simulations are illustrative only, and do not account for substitution on the supply or demand sides of the economy.
More generally, Ireland is a small open economy and has seen considerable shifts in the composition of economic activity over the years. The current growth in services exports points to the capacity for considerable change in the export mix over time.