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On the Cyclicality of R&D

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  • Min Ouyang

    (University of California, Irvine)

Abstract

We explore the link between short-run cycles and long-run growth by examining the cyclicality of R&D. Existing theories propose that R&D is concentrated when output is low, but aggregate data repeatedly show that R&D appears procyclical. We estimate the relationship between R&D and output using an annual panel of twenty U.S. manufacturing industries from 1958 to 1998. The results indicate that R&D is in fact procyclical, but, interestingly, estimates using demand-shift instruments suggest that it responds asymmetrically to demand shocks. We propose that liquidity constraint is an important cause for the observed procyclicality of R&D. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 93 (2011)
Issue (Month): 2 (May)
Pages: 542-553

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Handle: RePEc:tpr:restat:v:93:y:2011:i:2:p:542-553

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Artuc, Erhan & Pourpourides, Panayiotis M., 2012. "R&D and aggregate fluctuations," Policy Research Working Paper Series 6017, The World Bank.
  2. Min Ouyang, 2010. "Virtue of Bad Times and Financial Market Frictions," Working Papers 101103, University of California-Irvine, Department of Economics.
  3. Pilar Beneito & María E. Rochina-Barrachina & Amparo Sanchis, 2013. "Ownership and cyclicality of firms’ R&D investment," Working Papers 1306, Department of Applied Economics II, Universidad de Valencia.
  4. Christian Rammer, 2011. "Auswirkungen der Wirtschaftskrise auf die Innovationstätigkeit der Unternehmen in Deutschland," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 80(3), pages 13-34.
  5. Paloma López-García & José Manuel Montero & Enrique Moral-Benito, 2012. "Business cycles and investment in intangibles: evidence from Spanish firms," Banco de Espa�a Working Papers 1219, Banco de Espa�a.
  6. Christopher J. Nekarda & Valerie A. Ramey, 2011. "Industry Evidence on the Effects of Government Spending," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 36-59, January.
  7. Alexander Eickelpasch, 2014. "R&D Behavior of German Manufacturing Companies during the 2008/09 Recession," Discussion Papers of DIW Berlin 1357, DIW Berlin, German Institute for Economic Research.
  8. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series 2013_09, Department of Economics, Loughborough University, revised Sep 2013.
  9. Adam S. Posen, 2010. "The Central Banker's Case for Doing More," Policy Briefs PB10-24, Peterson Institute for International Economics.
  10. Georgios Efthyvoulou & Priit Vahter, 2012. "Financial Constraints, Innovation Performance, and Sectoral Disaggregation," Working Papers 2012030, The University of Sheffield, Department of Economics.
  11. Hud, Martin & Hussinger, Katrin, 2014. "The impact of R&D subsidies during the crisis," ZEW Discussion Papers 14-024, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  12. Sultan Mehmood, 2013. "Access to External Finance and Innovation: A Macroeconomic Perspective," CPB Discussion Paper 218, CPB Netherlands Bureau for Economic Policy Analysis.

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