Economic Memos provide insight into the analysis work being performed by Danmarks Nationalbank’s employees. For example, Economic Memos contain background analyses and method descriptions. Economic Memos are primarily targeted at people who already have a knowledge of economic and financial analyses.
Increased pharmaceutical exports have both aggregate and distributional effects
We use the Disaggregated Economic Accounts (DEA) model, developed by Andersen et al. (2023), to study the consequences of an increase in Danish pharmaceuticals exports. The model predicts that consumption and output increase following an increase in pharmaceutical export, but that the increase in output is temporary and vanishes when wages adjust. Although aggregate output is unchanged in the longer run, activity shifts between municipalities and industries. We compare these effects to the effects of a similar increase in general manufacturing exports.
Key messages
This memo contributes to a better understanding of some of the previously unexamined consequences of shocks to pharmaceutical exports, showing that aggregate consequences potentially mask significant geographical heterogeneity. The memo also contributes to a better understanding of the GDP multiplier following different kinds of export shocks, taking into account that the indirect effects of a shock depend on which consumers are affected by the shock. As pharmaceutical exports become more important for the Danish economy, understanding the consequences of shocks to Danish pharmaceutical companies is becoming more important. This memo provides relevant insights for Danmarks Nationalbank’s assessment of the current and future economic development in Denmark and corresponding economic policy recommendations.
Main chart
Consumption increases across
all of Denmark following an increase
in Danish pharmaceutical exports, but
the consumption gains are largest in Northern Zealand and in Kalundborg
Note:
The percentage change in real consumption is measured as the real consumption in equilibrium for each municipality in the version of the DEA model without nominal rigidities, relative to the baseline real consumption in each municipality. As a result, the map shows the medium run impact of a pharmaceutical export shock.
Source:
Own calculations based on the DEA model.