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Business Cycles and Investment in Productivity-Enhancing Activities: Evidence from Spanish Firms

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  • Paloma L�pez-Garc�a
  • Jos� Manuel Montero
  • Enrique Moral-Benito

Abstract

This paper tests the opportunity-cost theory on the long-run effects of business cycles using a panel of Spanish firms during the period 1991--2010. Under this theory, the share of productivity-enhancing activities (PEAs), such as R&D investment or on-the-job training, relative to production activities should increase during downturns because of the fall in their relative cost -- in terms of forgone output. This would imply that business cycles may have a (positive) long-term impact on firms' productivity growth. In the spirit of Aghion et al. (2008), we allow the impact of the cycle on PEA to vary between firms with different access to external funding. We find that, in accordance with the opportunity-cost approach, the share of R&D investment and training expenditures on total investment outlays follow a countercyclical pattern, which in the case of R&D may be reversed by the presence of credit constraints. However, the share of investment in other non-R&D-related intangible investments is found to be acyclical, which could suggest some kind of substitution across different PEAs over the cycle.

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  • Paloma L�pez-Garc�a & Jos� Manuel Montero & Enrique Moral-Benito, 2013. "Business Cycles and Investment in Productivity-Enhancing Activities: Evidence from Spanish Firms," Industry and Innovation, Taylor & Francis Journals, vol. 20(7), pages 611-636, October.
  • Handle: RePEc:taf:indinn:v:20:y:2013:i:7:p:611-636
    DOI: 10.1080/13662716.2013.849456
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    References listed on IDEAS

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    1. Hernando, Ignacio & Martínez-Carrascal, Carmen, 2008. "The impact of financial variables on firms' real decisions: Evidence from Spanish firm-level data," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 543-561, March.
    2. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2012. "Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001-1024, October.
    3. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 609-639, Elsevier.
    4. Aghion, P. & Askenazy, P. & Berman, N. & Cette, G. & Eymard, L., 2008. "Credit Constraints and the Cyclicality of R&D Investment: Evidence from France," Working papers 198, Banque de France.
    5. Andrew Benito & Ignacio Hernando, 2002. "Extricate: Financial Pressure and Firm Behaviour in Spain," Working Papers 0227, Banco de España.
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    Cited by:

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    2. Álvarez-Ayuso, Inmaculada C. & Kao, Chihwa & Romero-Jordán, Desiderio, 2018. "Long run effect of public grants and tax credits on R&D investment: A non-stationary panel data approach," Economic Modelling, Elsevier, vol. 75(C), pages 93-104.
    3. Giebel, Marek & Kraft, Kornelius, 2018. "Bank credit supply and firm innovation," ZEW Discussion Papers 18-011, ZEW - Leibniz Centre for European Economic Research.
    4. Ascensión Barajas & Elena Huergo & Lourdes Moreno Martín, 2017. "Public Support to Business R&D and the Economic Crisis: Spanish Evidence," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales 17-03, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
    5. José García-Quevedo & Gabriele Pellegrino & Maria Savona, 2017. "Reviving demand-pull perspectives: The effect of demand uncertainty and stagnancy on R&D strategy," Cambridge Journal of Economics, Oxford University Press, vol. 41(4), pages 1087-1122.
    6. Armand, Alex & Mendi, Pedro, 2018. "Demand drops and innovation investments: Evidence from the Great Recession in Spain," Research Policy, Elsevier, vol. 47(7), pages 1321-1333.
    7. Maria Garcia-Vega & Oscar Vicente-Chirivella, 2019. "R&D and firm resilience during bad times," Discussion Papers 2019-13, University of Nottingham, GEP.
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    9. Gabriele Pellegrino, 2015. "Barriers to innovation: can firm age help lower them?," Working Papers 2015/3, Institut d'Economia de Barcelona (IEB).
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    11. García-Vega, María & Vicente-Chirivella, Óscar, 2020. "Do university technology transfers increase firms’ innovation?," European Economic Review, Elsevier, vol. 123(C).
    12. Sebastiano Cattaruzzo & Agustí Segarra-Blasco & Mercedes Teruel, 2024. "Firm-level contributions to the R&D intensity distribution: evidence and policy implications," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 33(1), pages 45-65, January.
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    14. Dietz Daniel & Zwick Thomas, 2020. "Training in the Great Recession – Evidence from an Individual Perspective," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 240(4), pages 493-523, August.
    15. Zavadska Diana, 2018. "Research of banks participation in crediting the needs of innovative development of industry in Ukraine," Technology audit and production reserves, 6(44) 2018, Socionet;Technology audit and production reserves, vol. 6(5(44)), pages 41-54.
    16. Lee, Daeyong, 2018. "Impact of the excise tax on firm R&D and performance in the medical device industry: Evidence from the Affordable Care Act," Research Policy, Elsevier, vol. 47(5), pages 854-871.
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    18. José García-Quevedo & Gabriele Pellegrino & Maria Savona, 2017. "Reviving demand-pull perspectives: The effect of demand uncertainty and stagnancy on R&D strategy," Cambridge Journal of Economics, Oxford University Press, vol. 41(4), pages 1087-1122.
    19. Giebel, Marek & Kraft, Kornelius, 2020. "R&D investment under financing constraints," ZEW Discussion Papers 20-018, ZEW - Leibniz Centre for European Economic Research.
    20. Ascensión Barajas & Elena Huergo & Lourdes Moreno, 2021. "The role of public loans in financing business R&D through the economic cycle," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(2), pages 505-538, July.
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    22. Zeynep Kabukcuoglu, 2019. "The cyclical behavior of R&D investment during the Great Recession," Empirical Economics, Springer, vol. 56(1), pages 301-323, January.

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