The purpose of this research is to analyze the economic impact of R&Dinvestment in Korean Pharmaceutical firms. To be specific, this paper analyzesthe impact of R&D investment in Korean Pharmaceutical firms on laborproductivity and, identifies the factors which have an influence on the level ofR&D investment.The result of this analysis can be summarized as follows. First, R&Dinvestment has a positive impact on labor productivity. This finding issupported not only by growth accounting analysis but also by 2SLS analysis,which considers the endogenity of explanatory variables. Second, domestic 50Pharmaceutical firms have a tendency to focus on short-term R&D activitysuch as the development of generic medicine, not on long-term activity suchas the development of new medicine. Third, it is also found that the level ofR&D investment is affected not only by financial factors such as the level ofdebt, but also by industrial structure and firm’s size.