Geopolitical & Macroeconomic Impact on Pharmaceutical Investments

This essay examines the influence of geopolitical and macroeconomic factors on investments in the pharmaceutical industry. It discusses how unemployment rates, the number of uninsured individuals, and inflation impact pharmaceutical investments, illustrating these effects with graph...Read More

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 0
Geopolitical and Macroeconomic Factors that Affect Investments Pharmaceutical Industry
Student Name
Course
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GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 1
Explain and discuss geopolitical and macroeconomic factors that might have an effect on
investments in the pharmaceutical company/industry in the next coming years. Illustrate in an IS-
LM model how this will affect the macroeconomic. Explain!
Introduction
The pharmaceutical companies invest billions of dollars in drug developments and
researches. Their hope is discovering a cure or other treatments that are effective. They undergo
all these processes with the expectation that they will recover and make income1. The
pharmaceutical industry is highly depended by the health care sector more so as a therapy for
preservation as well as a substitute for surgery. The industry’s function has grown, as well as its
threats. The patients’ expectations have increased, competition from other drug makers has
increased, and the requirements of the FDA have become strict. The success of the
pharmaceutical industry is highly dependent on the economy. However, there are
macroeconomic factors affecting the expansion of this sector in the coming years. In this paper,
we are going to do an analysis of those macroeconomic factors affecting investment in the
pharmaceutical industry.
Macroeconomic factors
The unemployment
One of the major things that affect any type of company is the number of unemployed
citizens in the country. The number of unemployed people in many countries has become a
1 Passas, Nikos. "Globalization, criminogenic asymmetries and economic crime." In International Crimes, pp. 17-42. Routledge, 2017.

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 2
major hindrance for investment in the pharmaceutical industry. High unemployment in a country
affects the pharmaceutical industry in the two most important ways. First, individuals with no
employment don't find funds to purchase pharmaceutical products that they might be in need of.
Secondly, the majority of citizens depend on work to offer insurance. Even when they are taken
on hire, the majority of them do not get various benefits until they worked for a certain period of
time. Therefore, because of the above-discussed issues concerning the increased rate of
unemployment, it is clear that the expected rate of investment in the pharmaceutical industry is
going to lower in the years to come2.
From the above graph, it is evidence that the unemployment rate is inversely proportional to the
rate of investment. Therefore, when many people are unemployed, the rate of investment
2 to Mau, Vladimir. "Between crises and sanctions: economic policy of the Russian Federation." Post-Soviet Affairs 32, no. 4 (2016): 350-377.
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GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 3
decreases. On the other hand, when the rate of employment is high, investment rate also
increases.
The number of uninsured and Underinsured People
There is nothing important in the pharmaceutical industry than the number of people that
have taken insurance3. People that are not insured or without unsatisfactory insurance covers are
normally unable to afford drugs that have been prescribed by doctors. Most of the times, they
choose to go for preventive medicines and then they wait for the situation to be serious so that
they can go for serious medical care that is more expensive. People who lack enough insurance
covers are left with high medical bills which they cannot pay4. Therefore, health care providers
are left uncompensated. As a result, those who are able to pay to end up being affected by the
blow-back effect are charged high to compensate for those who are unable to pay. The current
statistics in the country is that 50% of the population is insured. Recent research reveals that
about 25% of the population does not have adequate insurance covers. For that reason, the
investment level in the pharmaceutical industry is expected to lower in years to come because
there are a high number of people without proper insurance covers. Therefore, the expected
outcome of investment in the pharmaceutical industry is going to decrease.
3 Gomez, Ryan. "US Net Foreign Direct Investment: Determinants and Implications." Ph.D. diss., Assumption College, 2017.
4 Huq, Fahian, Kulwant S. Pawar, and Helen Rogers. "Supply chain configuration conundrum: how does the pharmaceutical industry mitigate
disturbance factors?." Production Planning & Control 27, no. 14 (2016): 1206-1220.

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 4
Inflation
Inflation refers to the continued rise in the overall product price level. Sensible inflation is
linked with growth in the economy, while high inflation can signify an exciting economy. When
the economy is rising, consumers, as well as businesses, use a lot of money in purchasing goods
and services. In the growth stage of an economic cycle, demand normally exceeds the supply of
the goods, and producers, on the other hand, are able to increase their prices5. Therefore, the rate
of inflation increases. If growth in the economy speeds up very fast, growth in demand happens
even faster, and producers increase their prices repeatedly. This is called an upward price spiral
or runaway inflation.
Inflation posse a stealth danger to investors since it chips away at real savings and returns on
investments. The majority of investors aspire to increase their lasting buying power. Price
increase puts this goal at danger investment returns and must first remain positive with the
inflation rate in order to raise the real influence of buying. For the reason that there might be
inflation in the coming years, the level of investment in pharmaceutical industries is expected to
decrease6.
5 Huq, Fahian, Kulwant S. Pawar, and Helen Rogers. "Supply chain configuration conundrum: how does the pharmaceutical industry mitigate
disturbance factors?." Production Planning & Control 27, no. 14 (2016): 1206-1220.
6 Gomez, Ryan. "US Net Foreign Direct Investment: Determinants and Implications." PhD diss., Assumption College, 2017.
Planned investment
Rate of
interest

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 5
N.b. inflation rate causes change in interest rates
When the interest rate is low, the level of equilibrium will be high. Therefore, the IS curve
becomes the locus of those combinations of interest rate and the level of national income at
which the goods market is in equilibrium. From the above graph it is evident that whenever the
rate of interest is high, there is a low investment in pharmaceutical products because of reduced
borrowing from financial institutions.
Geopolitical factors
Regulations by the Government
The manner in which the government is regulating the pharmaceutical industry determines
the profitability of the industry. Each and every government normally regulates the
pharmaceutical industry to a different measure. Various countries like Germany and Canada
have caps or price controls, on pharmaceutical products sold within their borders. Moreover, the
FDA and the government of the United States exert a deal of control over the advertising by the
pharmaceutical industries and makes claim on what a certain drug can do as well as what it can’t
do. Due to the fact that pharmaceutical industries comply with this kind of regulations from the
government, millions of dollars get lost per year7. According to researches that have been
contacted previously, more than 85 percent of pharmaceutical development cost goes to meet the
terms of the government. Increased government regulation on pharmaceutical products
discourages investors from investing. Therefore, it is anticipated that there is going to be a
decreased rate of investment in the coming years due to government regulations.
7 bin Mohamad, Mohamad Hanapi. "FOREIGN DIRECT INVESTMENT LAW IN ASEAN COUNTRIES: PROSPECT FOR ASEAN
ECONOMIC COMMUNITY." Yustisia Jurnal Hukum 8, no. 1 (2019): 47-68.

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 6
Stimulus packages by the Government
Due to the growing rate of unemployment, the increasing number of uninsured people, and
the current economic downturns, there are many calls for government intervention. There has
been an introduction of stimulus packages by both the outgoing and the incoming
governments. Even if stimulus finances assist the pharmaceutical industry for short periods,
economists disagree with effects that are long term on the effects of inflation. Therefore, there
is a likelihood of stimulus of the government affecting the level of investment in the years to
come.
2. Discuss whether the impact of fiscal policy (in casu government consumption) on GDP, i.e.
the fiscal policy multiplier, is larger in open economies or in closed economies. Explain and
illustrate with graphs of own choice.
The IS curve, open economy, and the multiplier
Suppose that the financial system is closed or open (no overseas business is happening).
Suppose that the rates of exchange are flexible or fixed. Suppose that there are no effects on
the LM curve caused by the openness of the economy, and also by the exchange rate regime 8.
Focusing on the IS curve effect, the slopes on which depends on the multiplier (k, which is the
opposite of the rate of marginal leakage) and on b, the rates of interest receptiveness of
intended self-directed expenditure (Ap).
A fixed rate of exchange, Open economy
8 Braga, Carlos A. Primo. "Innovation, Trade, and Intellectual Property Rights: Implications for Trade Negotiations." Megaregionalism 2.0:
Trade and Innovation within Global Networks 67 (2018): 343.

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 7
In a financial system which is open, normally, there are added likely outflows like imports that
induced (-n0Y)- because of this reason, its leakage which is trivial has to be elevated than and
inferior to in a financial system that is open as shown in below figure. The result of this is an
IS curve which is steeper compared to an economy that is closed. This consecutively refers to
the effect of crowding-out which lowers the personal expenditure in reference to high rates of
interest which is less significant and the economic rule multiplier (K1) is greater than the
economy that is closed.
In algebraic form, the unimportant rate of leakage that has a reliance of net export on profit,
through the brought net export, (-n0Y), earnings tax (t0Y) is set by s (1–t0)+t0+n0, which
fallout into several of
interest15
rate p.a10 E0
5
0 100 200 300
Real income
k = 1
s ( 1−t 0 ) +t 0+n 0
When we take the value of the trivial tendency to save (s), the tax rate on income (t 0), and
the trivial tendency to importation (n0) of 0.25, 0.2, and 0.1, in that order, we acquire the

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 8
multiplier value (k) of 2.0, and thus of the monetary as well as fiscal multipliers k2 = 0.667
and K1 = 1.333, in that order.
The open economy flexible exchange rate
The reverse, on the other hand, happens when changes on the substitute regime happen
beginning from rigid to bendable. The shape that follows is normally drawn with double IS
curves: the first one (the steeper) as of the rigid rates of exchange, plus the extra one (the
flatter) from bendable rates of exchange. Make an assumption that there is interest rates
increase. With a rate of exchange that is fixed, crowding out is limited on personal autonomous
expenditure (a+Ip), which cascades, and the effects of which are multiplied on real income 9.
Interest rates % p.a
15
10 E0
5
0 100 200 300
Real income Y
However, with elastic rates of exchange, increased tax fallout in rates of exchange
appreciation (e), and thus a drop in net export: this can be seen in the curve of IS which goes
around anti-clockwise as net exports (NX) drop. Briefly, a stimulus fiscal policy in a financial
9 Connolly, Richard. "The empire strikes back: economic statecraft and the securitization of political economy in Russia." Europe-Asia
Studies 68, no. 4 (2016): 750-773.

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 9
system that is open with elastic exchange rates generates mutually in a domestic crowding-out
effect as well as in international. It is hard to say that the effect of crowding in a financial
system that is open and has elastic rates of exchange is less or greater than in the economy that
is closed, but this is imaginary, as rising sincerity as well as elastic rates of exchange, has
directed to a decreased fiscal policy multiplier, a IS curve that is flatter, and an increase in
crowd-out importance.
Algebraic expression
Expressed algebraically, to find the net exports we use this formula NX=NX0–n0Y–ue
such that (-ue) signify the net export reliance on the actual rates of exchange 10. However, the
rate of exchange that is real has a constructive association with the rate of interest. That is e=dr
when d is the real exchange rate reaction to the change in interest rates. Net exports, on the
other hand, are set by NX=NX0–n0Y–udr which alters the equation for product marketplace
stability, given that NX is a constituent of entire spending: Y=k(A0–[b+ud]r)=k(A0–b’r). The
original variable b’ stands for the reaction of actual independent intended spending (Ap) to a
1% position alteration in the rate of interest (r), considering the oblique effect of the rates
interest on rates of exchange (e). Keep in mind that projected independent expenditure set by
the formula Ap=A0–b’r, where A0, which stands for the whole amount of self-directed Lecture
11-5 expenditure that happens at the zero rates, is specified by A0=a+Ip+NX0+G–cT0. Thus
the consequence of rates of interest on net export as well as the effects of the economic and
financial strategy actions with elastic rates of exchange can be just integrated into the IS-LM
model by substituting b with b’.
10 Setayesh, Sogol, and Tim K. Mackey. "Addressing the impact of economic sanctions on Iranian drug shortages in the joint comprehensive
plan of action: promoting access to medicines and health diplomacy." Globalization and health 12, no. 1 (2016): 31.

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 10
The multiplier on the economic rule (k1) turns out to be 1.0 and the financial policy
multiplier (k2) 1.0. Y=k1A0+k2(MsLP). By means of these multipliers, a genuine level of
income $175 billion p.a. possibly will be attained with A0=$125 billion per year and Ms/P =
$50 billion. Note that for the reason that the independent expenditure multiplier (k1) is at the
present 1 as an alternative of 2, it obtains $125 billion per year alternatively to $62.5 billion to
attain actual revenue of $175 billion per year. The additional independent expenditure is a
result of expenditure by the government (G), which is financed by the income tax revenue.
Bibliography

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 11
bin Mohamad, Mohamad Hanapi. "FOREIGN DIRECT INVESTMENT LAW IN ASEAN
COUNTRIES: PROSPECT FOR ASEAN ECONOMIC COMMUNITY." Yustisia Jurnal
Hukum 8, no. 1 (2019): 47-68.
Braga, Carlos A. Primo. "Innovation, Trade, and Intellectual Property Rights: Implications for
Trade Negotiations." Megaregionalism 2.0: Trade and Innovation within Global
Networks 67 (2018): 343.
Connolly, Richard. "The empire strikes back: economic statecraft and the securitization of
political economy in Russia." Europe-Asia Studies 68, no. 4 (2016): 750-773.
Gomez, Ryan. "US Net Foreign Direct Investment: Determinants and Implications." PhD diss.,
Assumption College, 2017.
Huq, Fahian, Kulwant S. Pawar, and Helen Rogers. "Supply chain configuration conundrum:
how does the pharmaceutical industry mitigate disturbance factors?." Production
Planning & Control 27, no. 14 (2016): 1206-1220.
Mau, Vladimir. "Between crises and sanctions: economic policy of the Russian
Federation." Post-Soviet Affairs 32, no. 4 (2016): 350-377.
Passas, Nikos. "Globalization, criminogenic asymmetries and economic crime." In International
Crimes, pp. 17-42. Routledge, 2017.
Setayesh, Sogol, and Tim K. Mackey. "Addressing the impact of economic sanctions on Iranian
drug shortages in the joint comprehensive plan of action: promoting access to medicines and
health diplomacy." Globalization and health 12, no. 1 (2016): 31.

GEOPOLITICAL AND MACROECONOMIC FACTORS, PHARMACEUTICAL COMPANY 12