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Simultaneous Innovation and the Cyclicality of R&D

Author

Listed:
  • Miroslav Gabrovski

    (University of Hawaii)

Abstract

There is ample evidence that R&D investment is mildly pro-cyclical. Whereas the existing literature can explain the positive correlation between investment in R&D and output, the moderate strength of the relationship remains under-explored. This paper develops a stochastic expanding-variety endogenous growth model that accounts for the observed mild pro-cyclicality of R&D. In the model, several firms may simultaneously make the same innovation. Innovations made by many firms simultaneously are of higher quality, on average, and contribute relatively more to the expansion of the knowledge stock in the economy. This delivers an endogenous mechanism that breaks the otherwise perfect correlation between R&D and output. A calibration of our model closely matches the cyclical properties of R&D. (Copyright: Elsevier)

Suggested Citation

  • Miroslav Gabrovski, 2020. "Simultaneous Innovation and the Cyclicality of R&D," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 122-133, April.
  • Handle: RePEc:red:issued:18-503
    DOI: 10.1016/j.red.2019.09.002
    as

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    References listed on IDEAS

    as
    1. Gabrovski, Miroslav, 2017. "Coordination Frictions and Economic Growth," MPRA Paper 81298, University Library of Munich, Germany, revised 17 Jul 2017.
    2. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304-345.
    3. Fatas, Antonio, 2000. "Do Business Cycles Cast Long Shadows? Short-Run Persistence and Economic Growth," Journal of Economic Growth, Springer, vol. 5(2), pages 147-162, June.
    4. repec:fth:harver:1473 is not listed on IDEAS
    5. Walde, Klaus & Woitek, Ulrich, 2004. "R&D expenditure in G7 countries and the implications for endogenous fluctuations and growth," Economics Letters, Elsevier, vol. 82(1), pages 91-97, January.
    6. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, vol. 96(3), pages 523-551, June.
    7. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 287-343, National Bureau of Economic Research, Inc.
    8. Klaus Kultti & Tuomas Takalo & Juuso Toikka, 2007. "Secrecy versus patenting," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 22-42, March.
    9. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    10. Gadi Barlevy, 2007. "On the Cyclicality of Research and Development," American Economic Review, American Economic Association, vol. 97(4), pages 1131-1164, September.
    11. Corriveau, Louis, 1998. "Innovation Races, Strategic Externalities and Endogenous Growth," Economica, London School of Economics and Political Science, vol. 65(259), pages 303-325, August.
    12. Linda R. Cohen & Jun Ishii, 2005. "Competition, Innovation and Racing for Priority at the U.S. Patent and Trademark Office," Working Papers 050604, University of California-Irvine, Department of Economics.
    13. Min Ouyang, 2011. "On the Cyclicality of R&D," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 542-553, May.
    14. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
    15. Kira R. Fabrizio & Ulya Tsolmon, 2014. "An Empirical Examination of the Procyclicality of R&D Investment and Innovation," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 662-675, October.
    16. Patrick Francois & Huw Lloyd-Ellis, 2009. "Schumpeterian Business Cycles with Pro-Cyclical R&D," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 567-591, October.
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    More about this item

    Keywords

    Simultaneous innovation; Research and development; Medium-term cycles; Macroeconomic fluctuations; Endogenous cycles;

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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