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Capital-Labor Complementarities In R&D Production And The Lingering Effects Of Economic Slowdowns


  • Alexei G. Orlov

    () (Department of Economics, Radford University)

  • John Roufagalas

    (Department of Economics, Radford University)


In an attempt to advance our understanding of the potential long-run benefits of macroeconomic stabilization policies, the paper studies the long-term effects of economic slowdowns. We construct a discrete-time endogenous growth model, in which a recession, defined as a reduction in resource utilization for a limited number of periods, may have long-lasting detrimental effects on the growth path of the economy. We study the long-term consequences of recessions of various durations and intensities by comparing an economy that grows at steady state rates to one that experiences a recession. The long-run effects of a recession are estimated as the discounted present value of the output differences of the two economies. Our results show that even mild recessions, such as those observed in the last 50 years in the U.S., can have long-lasting adverse level effects on output. A typical recession that causes a 1% reduction in GDP for one year, after which the economy returns to its steady-state 3% growth rate, may result in output losses whose present value is equivalent to 6.5% of the pre-recession output.

Suggested Citation

  • Alexei G. Orlov & John Roufagalas, 2008. "Capital-Labor Complementarities In R&D Production And The Lingering Effects Of Economic Slowdowns," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 33(1), pages 1-25, June.
  • Handle: RePEc:jed:journl:v:33:y:2008:i:1:p:1-25

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    References listed on IDEAS

    1. Pastore Francesco & Ferragina Anna Maria & Giovannetti Giorgia, 2009. "A Tale of Parallel Integration Processes: A Gravity Analysis of EU Trade with Mediterranean and Central and Eastern European Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 5(2), pages 21-44, September.
    2. Binder, John J, 1998. "The Event Study Methodology since 1969," Review of Quantitative Finance and Accounting, Springer, vol. 11(2), pages 111-137, September.
    3. Rodney Thom & Brendan M. Walsh, 2001. "The effect of a common currency on trade : Ireland before and after the Sterling link," Working Papers 200110, School of Economics, University College Dublin.
    4. K. Kalirajan, 1999. "Stochastic varying coefficients gravity model: An application in trade analysis," Journal of Applied Statistics, Taylor & Francis Journals, vol. 26(2), pages 185-193.
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    Cited by:

    1. Dibyendu Maiti & Sugata Marjit, 2011. "Subcontracting, R&D And Labour Productivity: A Theoretical Explanation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(3), pages 1-24, September.

    More about this item


    Costs of Recession; Endogenous Growth; Embodied Technology; Capital- Labor Complementarities;

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications


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