Aparna Mathur

Foreign direct investment, corruption and democracy

This article is the first to show that foreign investors care about economic freedoms, rather than political freedoms, in making decisions about where to locate capital. Hence more democratic countries may receive less Foreign Direct Investment (FDI) flows if economic freedoms are not guaranteed. One reason could be that democratizing developing economies are often unable to push through the kind of economic reforms that investors desire due to the presence of competing political interests. This could potentially explain why countries like China and Singapore that rank poorly on the democracy index but are relatively high on the property rights index do well in terms of FDI inflows.

Does price reveal poor-quality drugs? Evidence from 17 countries

Focusing on 8 drug types on the WHO-approved medicine list, we constructed an original dataset of 899 drug samples from 17 low- and median-income countries and tested them for visual appearance, disintegration, and analyzed their ingredients by chromatography and spectrometry. Fifteen percent of the samples fail at least one test and can be considered substandard. After controlling for local factors, we find that failing drugs are priced 13.6-18.7% lower than non-failing drugs but the signaling effect of price is far from complete, especially for non-innovator brands. The look of the pharmacy, as assessed by our covert shoppers, is weakly correlated with the results of quality tests. These findings suggest that consumers are likely to suspect low quality from market price, non-innovator brand and the look of the pharmacy, but none of these signals can perfectly identify substandard and counterfeit drugs.

Generics Substitution, Bioequivalence Standards, and International Oversight: Complex Issues Facing the FDA.

The regulations for assessing the quality of generic drugs and their bioequivalence to innovator products are outdated and need to be substantially modernized. There are multiple reasons why these changes are needed, including: (i) the regulations remain largely unchanged since the passage of the Hatch-Waxman Act in 1984; (ii) medication therapies have become substantially more complex over the three decades since the passage of the Act; (iii) a switch from an innovator drug to a generic drug, or switching from one generic to another, is not a benign process - there is substantial clinical professional judgment involved and in some instances these decisions should be better informed; and (iv) pharmaceutical ingredients for finished products, whether innovator or generic, are from multiple sources of supply, adding variability in their production, and which may not be accounted for in specification tolerances. When these elements are viewed together, they clearly suggest that more transparency of responsible manufacturers in product labels and updated standards for bioequivalence are required.

In Whom We Trust: The Role of Certification Agencies in Online Drug Markets

Abstract This article uses an audit sample and a consumer survey to study the intriguing market of online prescription drugs facing US customers and assesses the role that certification agencies play in online drug markets. On the supply side, we acquire samples of five popular brand-name prescription drugs from three types of online pharmacies: tier 1 are US-based and certified by the National Association of Boards of Pharmacy (NABP) or LegitScript.com, tier 2 are certified by PharmacyChecker.com or the Canadian International Pharmacy Association but not by NABP or LegitScript, and tier 3 are not certified by any of the four agencies. Most tier-2 and tier-3 websites are foreign. We find that 37 of the 365 delivered samples are different from the products we ordered and, therefore, non-testable. Conditional on testable samples, Raman spectrometry test finds no failure of authenticity except for eight Viagra samples from tier-3 websites. After controlling for testability and authenticity, tier-2 websites are 49.2% cheaper (p<0.01) and tier-3 websites are 54.8% cheaper (p < 0.01) than tier-1 sites. These differences are driven by non-Viagra drugs. For Viagra, failing samples are cheaper, but there is no significant price difference across tiers once we condition on testability and authenticity. To study the demand side, we designed a survey that was distributed by RxRights. Among the 2,522 respondents who have purchased prescription medication and are concerned about the price of US pharmaceuticals, results show that 61.54% purchase drugs online and mostly from foreign websites, citing cost saving as the leading reason. Conditional on shopping online, 41.11% check with a credentialing agency. Both samples convey a consistent message that certification agencies deliver useful information for foreign websites and online consumers. Further, while these findings confirm the Food and Drug Administration warning against rogue websites, they do suggest that a blanket ban against all foreign websites may deny consumers substantial savings from certified tier-2 websites.

Has the Affordable Care Act increased part-time employment?

Abstract We examine the impact of the Affordable Care Act (ACA) on part-time employment. Because the ACA’s employer health insurance mandate applies to individuals who work 30 or more hours per week, employers may try to avoid the mandate by cutting workers’ hours below the 30-hour threshold in order to avoid having to provide them with health insurance. Although the employer mandate only went into effect in 2015, many observers have argued that forward-looking employers began to shift towards a part-time workforce well in advance of the mandate. To test this hypothesis, we examine relative shifts across two categories of part-time workers (25–29 hours and 31–35 hours). We find some evidence of a shift from the 31–35-hour category into the 25–29-hour category after the passage of ACA in March 2010. However, that shift is not more pronounced among low-wage workers or among workers in industries and occupations most likely to be affected by the mandate. Thus, there is little evidence that the ACA has caused the shift across hours categories, or led to an increase in part-time employment. However, the ACA could cause a shift towards part-time work in the future as the mandate takes effect.

Poor-Quality Drugs and Global Trade: A Pilot Study

Experts claim that some Indian drug manufacturers cut corners and make substandard drugs for markets with nonexistent, underdeveloped, or emerging regulatory oversight, notably Africa. This paper assesses the quality of 1,470 antibiotic and tuberculosis drug samples in solid oral form (tablet or capsule) that claim to be made in India and were sold in Africa, India, and five mid-income non-African countries. We find that 10.9 percent of those products fail a basic assessment of active pharmaceutical ingredients (API), and the majority of the failures are substandard (7 percent) as they contain some correct API but the amount of API is underdosed. The distribution of these substandard products is not random: they are more likely to be found as unregistered products in Africa than in India or non-African countries. Moreover, our finding is robust for manufacturer-drug fixed effects, and is unlikely to be explained by differences in storage conditions as the five Indian cities in our sample are on average more likely to have high temperatures, above 25°C or 30°C, than the other African or non-African cities. A more likely explanation is that Indian pharmaceutical firms and/or their export intermediaries differentiate drug quality according to the destination of consumption.

Predicting Tax Reform

Despite the frequency of tax changes and their potential importance to investors, there has been relatively little modeling of anticipated tax changes. Yet whether future tax reforms are predictable or not will have an enormous effect on estimates of the impact of current tax policies. This paper develops a probit model for predicting tax reforms. We find that the likelihood that a country will lower its corporate tax rate in the future is significantly affected by what we describe as “learning” and “strategic” factors. The learning comes from a country’s own experience with tax rate reductions. Hence a country is more likely to lower rates if it has lowered rates in the past and seen an economic benefit from such actions. At the same time, countries respond strategically to tax rates in competing countries. They are more likely to lower rates if their rates are higher than the average for their neighbor countries. Hence countries do appear to engage in tax competition. Our model performs well, with an in-sample and out-of-sample accuracy of close to 85 percent. We conclude that empirical investment research should account for the fact that future tax changes are highly predictable.

An Empirical Analysis of Middle Class Welfare: Testing Alternative Approaches

Every year the Census Bureau reports data on income inequality and poverty, based on income estimates derived from the Current Population Survey. Our analysis suggests that the data may not be presenting an accurate picture. By under-reporting incomes, leaving out certain sources of income, and not making equivalence adjustments that are now standard among researchers, the reports present an imperfect picture of overall welfare. We develop an alternative that relies on data from the National Income and Product Accounts. Our data reveal that real median incomes have been increasing in the recent period, albeit at a slower rate than the long-term average. Using the same methodology for consumption, we find that consumption for all income groups, including the middle, has been growing robustly in recent times. This is in contrast to statistics reported by the Consumer Expenditure Survey, the most often cited data for all consumption analysis, which show middle class consumption declining.

Corruption and Medicine Quality in Latin America: A Pilot Study

Abstract Fake and substandard medicines are a significant problem in developing nations, and a growing problem in developed ones too. There have been assessments of basic medicine quality from many countries and regions across the world but almost none in Central and South America. Over the past decade, as part of our research, we have collected over ten thousand samples of medicines from 22 cities in emerging markets, but the only one from the Latin region was Sao Paolo in Brazil. We have now rectified this gap, at least for one critical medicine, the broad spectrum antibiotic ciprofloxacin. Using original, self-collected data from ten countries in Latin America, we test whether the 687 Ciprofloxacin treatments pass the Global Pharma Health Fund e.V. Minilab® protocol to identify substandard or counterfeit medicines. In terms of quality, 93 percent of drugs were good quality. Within the drugs that failed the quality test, the majority were substandard rather than fake. About 26 % of the poor quality drugs were fake, with zero active pharmaceutical ingredient (API), while the rest were substandard, with less than 80 % API. In line with results from our earlier studies, we find that products that were locally registered, as well as those with SRA or WHO pre-qualification, were more likely to pass the test. A new finding in this paper is that corruption is a key predictor of poor quality drugs. Less corrupt countries had higher levels of passing drugs.

Dividends and Investment: Evidence of Heterogeneous Firm Behavior

This article investigates the relationship between dividend payouts and corporate investment. We find significant heterogeneity in the relationship across firms—heterogeneity that helps reconcile competing results in the literature. Drawing on financial filing data from Compustat, we first broadly replicate the statistically significant negative relationship estimated by Auerbach and Hassett. We show that this relationship does not hold if the variation is restricted to within-firm only. Our null results suggest a relatively precise zero estimate for the mean firm. Next, we investigate heterogeneity in the relationship between dividends and investment. Using quantile regression methods, we find that this negative relationship is concentrated at the top of dividends distribution: only firms from the seventieth percentile and above exhibit a strongly negative relationship, and it is these firms that drive the negative estimates of pooled ordinary least square regressions reported in prior work.