Qiao Jiahui,Wang Su,Chen Yuwen

(School of Business Administration,Shenyang Pharmaceutical University,Shenyang 110016,China)

Abstract Objective To study the relationship between export orientation and research and development (R&D) investment so as to provide suggestions and references for improving the R&D investment level and innovation capabilities of pharmaceutical industry due to the progress of globalization and the continuous development of export trade of China’s pharmaceutical industry.Methods The relevant data of China’s pharmaceutical industry from 2001 to 2016 was selected to establish an error correction model based on the co-integration theory,and then the Granger causality test was conducted to determine the relationship between the export orientation and R&D investment of China’s pharmaceutical industry in different regions.Results and Conclusion It is found that the export orientation of the pharmaceutical industry in different regions has a significant negative impact on the investment of R&D.Among them,the middle region has the greatest impact,followed by the eastern and western regions.The export orientation of the pharmaceutical industry in the middle region has a lag effect on R&D investment,and the lag phase is two years.

Keywords:pharmaceutical industry; export orientation; R&D investment; co-integration analysis

Pharmaceutical industry is one of the hightech industries related to the public health and is experiencing fast growth.In recent years,China’s government has successively made several policies to promote the development of the pharmaceutical industry,among which innovation-driven development has become a major concern.Major new drug research and development (R&D) plans have been included in the national strategic program[1],and innovative activities have become the key to the longterm development of the pharmaceutical industry.According to the data in the “Statistical Yearbook of China’s High-tech Industries”,the internal expenditure of R&D in China’s pharmaceutical industry was only 0.565 billion yuan in 1996,but reached 48.847 billion yuan in 2016[2].The R&D investment in China’s pharmaceutical industry has been increasing year by year.But compared with Roche Group’s R&D investment of $11.532 billion in 2016,the R&D investment in China’s pharmaceutical industry is still at a low level.With the progress of globalization and the continuous increase of export trade,the function of export orientation has gradually been widely used and studied by some scholars.According to relevant data,the R&D investment of the pharmaceutical industry in different regions of China has increased year by year,and the export trade has also gone up quickly,but the function of export orientation decreased.Therefore,the relationship between the two has become a popular topic.At the same time,considering the great differences in the development of the pharmaceutical industry in different regions of China,this paper selects various pharmaceutical enterprises in different regions from 2001 to 2016 as the research object to empirically analyze the relationship between export orientation and R&D investment.The comparison of regional results aims to provide reference for the pharmaceutical enterprises to improve their innovation capabilities and formulate corresponding policies.

1 Literature review

1.1 Research on the impact of export orientation on R&D investment

After analyzing the relevant literature,it is found that the impact of export orientation on R&D investment does not have the same conclusion,which has both positive and negative effects.Brage et al.(1991) conducted a regression analysis on the impact of export trade of 4 342 Brazilian industrial companies on R&D investment and found that export orientation had a positive impact on the amount of R&D investment[3].Wang Guoshun et al.(2010)took the three-digit industry in China as the research object.They constructed an input-output model in the process of enterprise technological innovation to analyze panel data from 1999 to 2007 and found that export orientation could promote the overall innovation efficiency significantly[4].Cintio (2017)studied the relationship between the R&D investment of Italian companies and export trade,using large and medium-sized enterprises as the research object.They also found that their export trade promoted R&D investment[5].Jiang Wenwen et al.(2019) used the VEC model to study the relationship between export orientation and technological innovation level.Through an empirical analysis of the data of the pharmaceutical industry in Liaoning Province from 2000 to 2016,they found that the export orientation of the pharmaceutical industry in Liaoning Province had a positive influence on technological innovation[6].

Wang Renfei (2005) took the electronic information industry as the research object and selected the statistical data of 100 companies from 2000 to 2003 to conduct an empirical research.The results showed that export orientation had a negative impact on R&D investment.The more companies relied on exports,the less R&D investment[7].Pang Li et al.(2009) conducted an empirical study on the relationship between the R&D capability and export orientation of China’s auto companies,and found that the export orientation could hardly promote R&D investment[8].

1.2 Research on the impact of R&D investment on export orientation

After analyzing the relevant literature,it is found that the impact of R&D investment on export orientation does not have the same conclusion,which also has both positive and negative effects.Roper et al.(2002) conducted a survey on 3 000 industrial enterprises and found that innovation had a significant positive impact on export orientation in these enterprises in the UK and Germany[9].Huang Xianhai et al.(2015) selected China’s industrial enterprise data from 2005 to 2007 to study the relationship between export trade and innovation under the framework of the D-S model,and found that R&D could increase corporate profits,thereby reducing the cost that export brought to the enterprises.Therefore,the R&D had a positive impact on the export orientation of Chinese industrial enterprises[10].

Wei Long et al.(2005) conducted an empirical study on the impact of innovation behavior of China’s high-tech industries on export trade from 1995 to 2002 and found that innovation did not significantly promote export trade[11].Damijan et al.(2008) made an analysis of Slovenia’s enterprise data from 1996 to 2002 and concluded that innovation could not promote enterprises to enter the international market quickly[12].

According to the above literature review,due to different specific industries and selected samples,domestic and foreign scholars have reached different conclusions on the relationship between export orientation and R&D investment.At the same time,although there are related studies in the field of China’s pharmaceutical industries,no scholars have conducted research on the relationship between the export orientation of China’s pharmaceutical industry and R&D investment in different regions.Therefore,this paper takes the pharmaceutical industries in different regions of China as the research objects to analyze the relationship between them,aiming to provide reference for further improving the R&D investment level and innovation capability of China’s pharmaceutical industry.

2 Research design

2.1 Co-integration theory

When studying the correlation between variables,regression analysis is often used.However,some economically significant data are usually nonstationary series,which will increase or decrease over time.If the least squares method is still used for regression analysis,the phenomenon of false regression will appear,leading to some inaccurate results.In 1987,Granger proposed a new method for the study of the relationship between non-stationary economic variables-co-integration analysis method,which can solve the problem of false regression effectively[13].Therefore,this paper chooses the cointegration analysis method to study the relationship between the export orientation of eastern,central and western pharmaceutical industry and R&D investment.

2.2 The steps of co-integration analysis

First,the stationarity of the time sequences is tested to determine whether the variables have the conditions for co-integration analysis.In this paper,the ADF test method is used to test whether the variables and their difference sequences are of the same order.Secondly,the Engle-Granger (E-G) two-step method is used for co-integration test,and the co-integration relationship between variables is given.Then,an error correction model is established.According to Granger’s theorem,a group of variables with cointegration relationship must be able to establish an error correction model to measure the short-term unbalanced relationship between variables[13].Finally,the Granger causality test is carried out to test the degree and direction of influence between variables.

2.3 Index selection and data description

The explanatory variable in this paper is export orientation,and the degree of export orientation(EXP/%) is used as a measurement index.The calculation method is export delivery value/main business income.The explained variable in this article is R&D capital investment,which uses internal expenditure on R&D (RD/100 million yuan) as a measurement index.The related index description is shown in Table 1.The data selected in this article are from theStatistical Yearbook of China’s Hightech Industries[2],and the relevant indicator data of the pharmaceutical industry in different regions from 2001 to 2016 are selected for empirical research.The specific data are shown in Table 2.In order to eliminate the heteroscedasticity between the variables,the natural logarithm of the data of the related variables are taken and recorded as lnRD and lnEXP.This article uses Eviews 10.0 for analysis.

Table 1 Description of related indicators

3 Empirical analysis

3.1 Unit root test

Generally speaking,if the mean and variance of a time sequence does not change with time,the covariance between any two periodst1andt2will only depends on the interval of the two periods (t2-t1),which is irrelevant to the actual periodtof these covariances.Then,the time sequence is considered to have a certain degree of stationarity[13].If any of the above conditions is not met,it can be determined that the time sequence does not have stationarity.The unit root is a simple form of non-stationarity.The unit root test method will change from the test of a time sequence with stationarity into a test of time sequence with a unit root.The unit root test is performed on the time sequence of the relevant variables of the pharmaceutical industry in China’s different regions,and the results are shown in Table 3.

Table 3 ADF test results of time sequence variables

(to be continued)

Continued Table 3

It can be seen from Table 3 that the original sequences of lnE-RD,lnE-EXP,lnM-RD,lnMEXP,lnW-RD,and lnW-EXPall have unit roots at the confidence level of 5%,indicating that the original sequences of these variables are not smooth.Therefore,after first-order difference of the original sequence of all-time series variables,the ADF unit root test is performed.The results show that ΔlnERD,ΔlnE-EXP,ΔlnM-RD,ΔlnM-EXP,ΔlnW-RD,and ΔlnW-EXPall reject the null hypothesis that there is a unit root at the confidence level of 5%,which is stable.The time sequences are all 1st order single integers,and they meet the conditions of co-integration test.

3.2 Co-integration test

The E-G two-step method is used to conduct a co-integration test on the data to analyze whether there is a long-term equilibrium relationship between the export orientation of the pharmaceutical industry in China’s eastern,central and western regions and the R&D investment.

3.2.1 Co-integration regression

The regression equation is estimated through the least square method for the time sequence data of the pharmaceutical industry in China’s eastern,central and western regions,and the correlation degree between the variables is studied.The regression analysis results are shown in Table 4.

Table 4 Regression analysis results

(to be continued)

Continued Table 4

From the regression results in Table 4,the following equations can be derived.

The coefficients of determination of the three regression equations are all greater than 0.67,indicating that the degree of interpretation of the equation is greater than 67%,and both the degree of interpretation and the significance of the equation are better.Therefore,under the regression method of least squares estimation,export orientation can determine the changes in the internal expenditure of R&D funds,and all have negative effects.

3.2.2 Unit root test of residuals

The unit root test is performed on the residual items generated by the above three regression equations to check whether they are stationary sequences.If the residual term resid=ECMt,the following equation can be established and the ADF method is used to test the stationarity of the residual term.The ADF test results are shown in Table 5.

Table 5 Stationarity test results of residual series

According to the analysis of the test results in Table 5,the original sequence of the residual itemsECM1,ECM2andECM3are all stable.It is considered there are co-integration relationships between lnE-RDand lnE-EXP,lnM-RDand lnM-EXP,lnW-RDand lnWEXP.Therefore, there is a long-term stable relationship between the of export orientation of pharmaceutical industries and internal expenditure of R&D funds in China’s eastern,middle,and western regions.

According to formula (1),(2) and (3),the long-term elasticity coefficient of lnE-EXPto lnERDis-3.59,indicating that if the export orientation increases by one unit in the long run,it will reduce the internal expenditure of R&D by 3.59 units in eastern region.The long-term elasticity coefficient of lnM-EXPto lnM-RDis-4.00,indicating that in the long run,if the export orientation increases by one unit,it will make the internal expenditure of R&D decrease by 4.00 units in middle region.The longterm elasticity coefficient of lnW-EXPto lnW-RDis-2.70,indicating that in the long run,if the export orientation increases by one unit,it will make the internal expenditure of R&D decrease by 2.70 units in eastern region.

3.3 Establishment of error correction model

The co-integration relationship is mainly used to illustrate the long-term equilibrium relationship between two variables.Granger’s representation theorem shows that if there is a co-integration relationship between the two variables,the short-term unbalanced relationship between the variables can be expressed by an ECM (error correction model).The error correction model can reflect the correction of the short-term deviation of variables to longterm equilibrium,and make up for the shortcomings in the long-term model[13].Therefore,the error correction models for the eastern,middle,and western pharmaceutical industries are established respectively in Table 6.

Table 6 Error correction model

An ECM for the export orientation and internal expenditure of R&D of the pharmaceutical industry in the eastern,middle and western regions of China is established.The specific error correction equations are as follows:

According to the three error correction equations,the coefficients of the error correction termsECM1,ECM2,andECM3are all less than 0,which conforms to the reverse correction mechanism and can dynamically adjust the deviation of shortterm equilibrium.That is,in the short term,if one unit changes in the export orientation in the eastern region,the change in internal expenditure of R&D by 0.01 units will bring it back to equilibrium.If one unit changes in the export orientation in the middle region,the change in internal expenditure of R&D by 0.17 units will bring it back to equilibrium.If one unit changes in the export orientation in the western region,the change in internal expenditure of R&D by 0.10 units will bring it back to equilibrium.

3.4 Granger causality test

The results of the co-integration analysis show that there is a long-term co-integration relationship between the export orientation of the pharmaceutical industry in each region and the internal expenditure of R&D.However,Granger causality test is needed to determine whether there is a causal relationship between them.Therefore,this paper adopts Granger causality test to examine the export orientation of the pharmaceutical industry in eastern,middle and western regions of China and the internal expenditure of R&D,and find out whether there is Granger causality between variables and its influence.The detailed results are shown in Table 7.

Table 7 Granger causality test

It can be seen from Table 7 that for the pharmaceutical industry in the eastern region,when the lag phase is 1,2,and 3,the principle that lnE-EXPis not the Granger cause of lnE-RDis accepted at the confidence level of 10%.They all reject the original hypothesis that lnE-RDis not the Granger cause of lnE-EXP.It means that lnE-RDis the Granger cause of lnE-EXP,but the opposite has not been proven.When the lag phase is 4,the null hypothesis is accepted,and the Granger causality between lnE-RDand lnE-EXPis not considered.

For the pharmaceutical industry in the middle region,when the lag phase is 1 or 3,the original hypothesis that lnM-EXPis not the Granger cause of lnM-RDis accepted at the confidence level of 10%,and the principle that lnM-RDis not the Granger cause of lnM-EXPis rejected.It means that lnM-RDis the Granger cause of lnM-EXP,but the opposite has not be proven.When the lag phase is 2,the principle that lnM-RDis not the Granger cause of lnE-EXPis accepted at the confidence level of 10%,and lnMEXPis the Granger cause of lnE-RD.But the opposite has not been proven.When the lag phase is 4,the null hypothesis is accepted,that is,the Granger causality between lnM-RDand lnM-EXPis not considered.

For the pharmaceutical in the western region,when the lag phase is 1 or 3,the original hypothesis that lnW-EXPis not the Granger cause of lnW-RDis accepted at the confidence level of 10%,and the principle that lnW-RDis not the Granger cause of lnW-EXPis rejected.Therefore,lnW-RDis the Granger cause of lnW-EXP,but the opposite has not been proven.When the lag phase is 2 or 4,the original hypothesis is accepted,and there is no Granger causality between lnM-RDand lnM-EXP.

4 Results and discussion

4.1 Eastern region

There is a long-term stable equilibrium relationship between the export orientation of the pharmaceutical industry in eastern and the internal expenditure of R&D.The long-term elasticity coefficient is-3.59.If there is one unit increase in the export orientation,it will reduce the internal expenditure of R&D by 3.59 units.The short-term elasticity coefficient of the export orientation to the internal expenditure of R&D expenditure is 0.01.If there is one unit change in the export orientation in the short term,the corresponding change in the internal expenditure on R&D expenditure will be 0.01 units.When the lag phase is 1,2,and 3,the internal expenditure of R&D in the pharmaceutical industry in the eastern region is the Granger cause of the export orientation,but the opposite has not been proven.

4.2 Middle region

There is a long-term stable equilibrium relationship between the export orientation of the pharmaceutical industry and internal expenditure of R&D in the middle region.The long-term elasticity coefficient is-4.00.if there is one unit increase in the export orientation,it will reduce the corresponding internal expenditure of R&D by 4.00 unit.The shortterm elasticity coefficient of the export orientation to the internal expenditure of R&D expenditure is 0.17.If there is one unit change in the export orientation in the short term,the corresponding change in the internal expenditure of R&D will be 0.17 units.When the lag phase is 2,the export orientation of the pharmaceutical industry in the middle region is the Granger cause of the internal expenditure on R&D,but the opposite has not been proven.

4.3 Western region

There is a long-term stable equilibrium relationship between the export orientation of the pharmaceutical industry and the internal expenditure of R&D in western region.The long-term elasticity coefficient is-2.70.If there is one unit increase in the export orientation,it will reduce the corresponding internal expenditure of R&D by 2.70 units.The shortterm elasticity coefficient of the export orientation to the internal expenditure on R&D is 0.10.If there is a unit change in the export orientation in the short term,the corresponding change in the internal expenditure of R&D expenditure will be 0.10 units.When the lag phase is 1 or 3,the internal expenditure of R&D in the western region is the Granger cause of the export orientation.

4.4 Comparative analysis

The export orientation of the pharmaceutical industry in the eastern,middle and western regions of China has a negative impact on internal expenditure of R&D.It shows that the higher the export orientation of China’s pharmaceutical industry is,the less internal expenditure of R&D will be.It is due to the fact that the products exported by China’s pharmaceutical industry are low-value-added products,mainly the low-grade chemical raw materials.There are few pharmaceutical preparations with high value-added and high technical content.So it is impossible for them to obtain high profit and they do not have sufficient funds to increase the investment in drug R&D.In addition,the export tendency will negatively affect the survival of enterprises.Enterprises that are active in export trade will face a higher survival risk than those are not inclined to export trade.Therefore,the export orientation of pharmaceutical enterprises increases,their survival risks will increase as well.At the same time,the investments in pharmaceutical innovation activities are huge,but their returns have a certain lag.In order to avoid risks,some enterprises will reduce the investment in R&D funds.

The negative influence of the export orientation for the pharmaceutical industry in different regions of China on the internal expenditure of R&D is different.The degree of influence is middle region＞ eastern region ＞ western region.This is mainly due to differences in the level of economic and technological development in China’s eastern,middle and western regions.The export orientation of pharmaceutical enterprises in the western region has the least negative impact on internal expenditure of R&D.This is due to the overall weak strength of the pharmaceutical enterprises in the western region,limited funds,and low drug production quality and scale.So,the number of drugs that can be selected for export is small,which leads to increased costs of export trade and unsatisfactory economic benefits.Therefore,pharmaceutical export trade does not occupy an advantage.Consequently,pharmaceutical enterprises in the western region will choose to invest limited funds in drug R&D.On the other hand,the pharmaceutical enterprises in the middle and eastern regions of China are mainly large and medium sized companies.They will tend to stabilize the development strategies and reduce the risk as far as possible.The survival risk faced by the export-oriented enterprises is higher than that of the non-export enterprises.When the export orientation of these enterprises increases,the risks faced by the enterprises will increase,too.As a result,these enterprises will not increase the investment in high-risk R&D.

The export orientation of pharmaceutical enterprises in the eastern region has a smaller negative impact on internal expenditure of R&D than those in the middle region.This is due to the fact the overall scale of pharmaceutical companies in the eastern region is larger than that in the middle region.Besides,there are more drug R&D personnel and institutions than the middle region.Enterprises pay more attention to drug R&D in the eastern region,while pharmaceutical enterprises in the middle region are inclined to export more generic drugs to increase their profit.On the other hand,the financing channels of pharmaceutical enterprises in the eastern region are wider than those in the middle region,and the source of their R&D funds does not depend too much on the profit from export trade.Therefore,the degree of negative influence of the export orientation on the internal expenditure of R&D in the eastern region is smaller than that in the middle region.

5 Conclusions and recommendations

5.1 Conclusions

(1) From a long-term perspective,the export orientation of eastern,middle,and western regions of the pharmaceutical industry in China has a significant negative impact on R&D investment.It means the increase in export orientation is not conducive to promoting the investment of R&D in the pharmaceutical industry.If there is one unit increase in the export orientation of the pharmaceutical industry in the eastern region,the internal expenditure of R&D will decrease by 3.59 units.If there is one unit increase in the export orientation of the pharmaceutical industry in the middle region,it will reduce the internal expenditure of R&D by 4.00 units.In the western region,if there is an increase in the export orientation by 1 unit,the internal expenditure of R&D will decrease by 2.70 units.

(2) The most negative impact of export orientation of pharmaceutical industry of R&D investment is the middle region,followed by the eastern and western regions.

(3) There is no lag in the influence of the export orientation of the pharmaceutical industry in eastern and western regions on R&D investment in the selected years.The export orientation of the pharmaceutical industry in the middle region has a lag effect on R&D investment,and the lag phase is two years.The impact of R&D investment in the pharmaceutical industry in the eastern,middle and western regions on export orientation is lagging.

5.2 Suggestions

From the above research,it is found that the export orientation of the pharmaceutical industry in the eastern,middle and western regions of China has a negative impact on the R&D investment.Therefore,when each region is increasing R&D investment and vigorously developing the pharmaceutical economy,it is necessary to minimize the impact of export orientation.Based on the negative impact of R&D investment,the following suggestions are made.

(1) Knowing the status of the enterprise and making reasonable decisions on export trade.Since export orientation has a negative impact on R&D investment,when the enterprise’s overall profit is at a low level,or when most of the exported products are low-value-added,the enterprise should moderately reduce export trade to cut its costs and risks.The enterprise should actively expand the domestic market to increase its main business profit.Then,it can invest more funds in R&D for innovative drugs,which will improve its competitiveness in the international market,and make the enterprise’s R&D form a virtuous circle.

(2) Increasing investment and moderately lowering the threshold of assistance.Pharmaceutical industry is a high-input and high-risk industry.The government should continue to increase investment in R&D to reduce the survival risk of enterprises.Besides,the government needs to provide certain subsidies for enterprises to strengthen their R&D capabilities.Because these incentive subsidies can encourage enterprises to carry out more R&D and form a virtuous circle.Lastly,the government can moderately lower the threshold of assistance and give a certain financial and policy tilt to some small and medium sized enterprises with innovative potential.

(3) Improving patenta ware ness and strengthening intellectual property protection.Gu Xiaoyan (2012) believes that export orientation can,to a certain extent,show whether an industry is in line with international standards[14].Strong protection of intellectual property rights has become the norm in advanced developed countries.Barriers have had a huge impact on Chinese export trade.In order to protect the legitimate rights and interests of Chinese pharmaceutical enterprises,the government should impose severe penalties on the infringement of innovative achievements in the pharmaceutical field.Meanwhile,enterprises should also correctly understand the importance of intellectual property protection,effectively and legally transform the innovation results into economic benefits,and provide enough financial support for the innovative R&D.

(4) Pharmaceutical enterprises in the eastern region should pursue sustainable development while maintaining stability.The large and medium sized pharmaceutical enterprises in the eastern region that are in the stable period should enhance their innovation awareness and pursue sustainable development while maintaining their fast development.Short-term profit-seeking behavior cannot guarantee the longterm development of an enterprise.We all know that innovation is the driving force for the sustainable development of an enterprise.Only by continuously conducting R&D and improving the technical content of products can an enterprise maintain its leading edge in the industry.Large and medium sized pharmaceutical companies in the eastern region should follow the development trend of the times and add changes to stability when formulating development strategies.

(5) Pharmaceutical enterprises in the middle region should take advantage of their resources to actively undertake industrial transfer.The middle region has vast land and human resources.Therefore,under the policies of supporting the middle region and the acceptance of industrial transfer,the middle region should seize the opportunity to use the advanced equipment and outstanding talents in the eastern region to innovate Chinese patent medicines.At the same time,the governments of various provinces and cities in the middle region should actively call on pharmaceutical enterprises to form some distinctive industrial parks,and provide policy assistance for them.Then,these enterprises can use these advantages to accelerate the local pharmaceutical economy.The development of the enterprises will increase their profit and provide more support for innovation activities.

(6) Pharmaceutical enterprises in the western region should seize policy opportunities to improve the level of R&D personnel.The western region should seize the development opportunities brought about by the “Belt and Road” initiative,vigorously developing distinctive ethnic medicines to accelerate the transformation of ethnic medicines into highly valued pharmaceutical preparations.It can help increase the level of pharmaceutical exports.Meanwhile,the western region should also improve the talent incentive policy,increase the training of R&D personnel,fully mobilize their enthusiasm,and attract more talents to the west,which can provide strong intellectual guarantee for the R&D of enterprises.These methods will improve the innovation level of pharmaceutical enterprises in the western region.