The Price of Success? How Graduation from Least Developed Country Status Could Impact Insulin Accessibility in Bangladesh

By Md. Deen Islam and Rachel Thrasher

In November 2021, the United Nations approved Bangladesh to graduate from Least Developed Country (LDC) status by 2026. An LDC graduation reflects a country’s economic strength and resilience to various types of financial and climate shocks and highlights the extent of economic and social progress achieved by the country. 

However, graduation also implies that certain exemptions for LDCs previously allowed under World Trade Organization’s (WTO) trade and intellectual property (IP) rules can no longer be claimed. As such, the country must work to comply with these rules, potentially hurting not only economic growth in some sectors, but also the welfare of certain groups. 

Bangladesh has sustained high economic growth over the last two decades – a reality especially seen in the pharmaceuticals sector, and faces unavoidable consequences by graduating from LDC status. Bangladesh’s LDC graduation threatens to slow the growth of the (largely generic) pharmaceutical industry as a result of stringent IP laws, and potentially lower access to essential medicines for some low-income families, as there will be fewer generic versions of patented medicines. Families with members suffering from a chronic illness that requires continuous medication are particularly vulnerable to these price increases and may suffer significant welfare loss.

In a new journal article published in the Asian Development Review, a team of researchers at the Boston University Global Development Policy Center investigates the effects of higher insulin prices following Bangladesh’s graduation from LDC status on welfare and poverty of households with members suffering from diabetes. 

Under different scenarios, the research team estimates the price of insulin could increase by about 1.5 times in a scenario where Bangladesh introduces policies like Pakistan’s (a neighboring country with similar macroeconomic conditions), and more than 11 times under a monopoly with no policy-intervention scenario. The sharp rise in the predicted price of insulin would have a significant impact on the welfare and poverty of households with diabetes members, especially for households needing insulin. The study finds that the increase in insulin prices after Bangladesh’s LDC graduation could lead to a loss in welfare ranging from $25 million to more than $650 million per year. The impact on the national poverty rate is relatively small, ranging from about 0.25 percent to 3 percent. Nevertheless, the poverty rate among households needing insulin could increase by between 15 and 200 percent after LDC graduation due to increasing insulin prices. Moreover, many long-term medications for chronic conditions will come under patent protection when Bangladesh loses LDC status and will have similar impacts on poverty. 

Insulin was chosen for the analysis as a significant fraction of Bangladesh’s population, about 10 percent as of 2016, suffers from diabetes, and this number continues to grow. In addition, many versions of insulin will still be patent protected after Bangladesh’s LDC graduation in 2033. The research team undertook an ex ante analysis, meaning the study relies on historical data and economic modelling to predict likely outcomes. Using the latest household income and expenditure data, the study predicted the impact of LDC graduation on insulin prices, as well as household welfare and poverty conditional on the current state of the economy. 

The analysis was performed in three steps. First, using Household Income and Expenditure Survey (HIES) data and a Quadratic Almost Ideal Demand System (QUAIDS) framework, the study estimates price and income elasticities of major expenditure items, including food, education and medicine costs for households with members suffering from diabetes. The estimated elasticities show that the demand for medicines is the most price and income inelastic, that is, people tend to purchase the same amount of medicine regardless of the cost. By contrast, the demand for food is unit elastic such that the demand for food increases in the same proportion as the price of food falls. Next, using these price elasticities and administrative insulin price data from Directorate General of Drug Administration (DGDS), changes in insulin prices were estimated under different counterfactual scenarios. One extreme counterfactual scenario is a monopoly on insulin, which is likely if Bangladesh adopts the IP rules as laid out by the WTO’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPS Agreement) and does not successfully regulate or influence market prices after LDC graduation. In a more likely scenario, Bangladesh will introduce some policy intervention to make insulin affordable by bulk public purchases to subsidize the consumer price of insulin. This policy is currently in effect for most types of insulin in Pakistan. 

The study has implications for other LDCs, as Nepal and the Lao People’s Democratic Republic will graduate alongside Bangladesh, and are likely to face similar impacts on medicines access and welfare. A recent study published in Science showed insulin imports in many countries with no local production of insulin failed to meet the insulin need of their populations living with diabetes.

In June 2021, the WTO extended the timeline for LDCs to implement the TRIPS Agreement to 2033. This is a positive move, but not sufficient for the poorest countries that will likely need more policy flexibility to increase access to medicines over the long term. In addition, graduating LDCs will need to explore policy options to mitigate the transition impacts on their populations.

In all, the study highlights the importance of policy intervention in Bangladesh to make essential medicines affordable to vulnerable households to avoid adverse effects of LDC graduation.

Md. Deen Islam is an Assistant Professor of Economics at the University of Dhaka, Bangladesh.

*

Never miss an update: Subscribe to the Global Economic Governance Initiative newsletter.