Demand shocks and firm-financed R&D expenditures
Business cycles might affect firms' ability and incentive to perform R&D. Firms finance most R&D activities out of cash flow so when cash flow decreases the funds available for R&D also decreases. This limits the ability of firms to perform R&D, potentially leading to reduced R&D expenditures during recessions. However, business cycles also influence the incentive to perform R&D. The opportunity cost of funds devoted to R&D falls during recessions since the return on production will likely be lower than during an expansion. During recessions, this provides firms with an incentive to redistribute an existing pool of funds away from production and towards R&D projects. This paper tests whether the business cycle influences the incentive and ability of firms to engage in R&D activities, in particular examining whether the response is symmetric across the business cycle.
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Volume (Year): 36 (2004)
Issue (Month): 14 ()
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- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995.
"Testing for Unit Roots in Heterogeneous Panels,"
Cambridge Working Papers in Economics
9526, Faculty of Economics, University of Cambridge.
- M Pesaran & Yongcheol Shin & Ron P Smith, 2004. "Pooled mean group estimation of dynamic heterogeneous panels," ESE Discussion Papers 16, Edinburgh School of Economics, University of Edinburgh.
- Benoit Mulkay & Bronwyn H. Hall & Jacques Mairesse, 2001.
"Firm Level Investment and R&D in France and the United States: A Comparison,"
2001-W2, Economics Group, Nuffield College, University of Oxford.
- Benoit Mulkay & Bronwyn H. Hall & Jacques Mairesse, 2000. "Firm Level Investment and R&D in France and the United States: A Comparison," NBER Working Papers 8038, National Bureau of Economic Research, Inc.
- Benoît Mulkay & Bronwyn H, Hall & Jacques Mairesse, 2000. "Firm Level Investment and R&D in France and the United States : A Comparison," Working Papers 2000-49, Centre de Recherche en Economie et Statistique.
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