Cyclical Persistence and the Cyclicality of R&D
AbstractWe propose cyclical persistence as an important factor influencing the timing of innovation. Schumpeter (1939) argues innovation should be concentrated during recessions when its marginal opportunity cost as forgone output is low. We propose the timing of innovation should be affected additionally by innovation's marginal expected return. A simple theory is presented, showing higher persistence raises the cyclical response in innovation's marginal expected return, makes the dominance of innovation's marginal opportunity cost more difficult, and therefore drives R&D pro-cyclical. We carry the theory to an industry panel of R&D and output. Our estimation results suggest persistence helps to account for the observed cross-industry differences in R&D's cyclicality.
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Bibliographic InfoPaper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 101104.
Length: 33 pages
Date of creation: Aug 2010
Date of revision: Mar 2011
Business cycles; Growth; Cyclical persistence; R&D;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-INO-2010-10-23 (Innovation)
- NEP-MAC-2010-10-23 (Macroeconomics)
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