Is Medicines Parallel Trade ‘Regulatory Arbitrage’?

We hypothesize that parallel trade of heavily regulated medicines is a form of ‘regulatory arbitrage’ that does not necessarily produce equivalent welfare effects as more ‘common’ forms of arbitrage. This paper empirically documents the latter hypothesis drawing upon a unique dataset that contains source country records of parallel imported medicines to the Netherlands. Hence, it allows estimating precise price differences with each source country/product. The data is from one therapeutic group (statins) that accounts for 5% of the market at the time of study and it faced no generic competition. Hence allows identifying a clean effect of PT determinants. Our findings reveal that parallel imports flows are determined by medicines distribution chain regulation, in addition to product price differences in line with the hypothesis of ‘regulatory arbitrage’.