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On the Cyclicality of R&D

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  • Min Ouyang

    (University of California, Irvine)

Abstract

We explore the link between short-run cycles and long-run growth by examining the cyclicality of R&D. Existing theories propose that R&D is concentrated when output is low, but aggregate data repeatedly show that R&D appears procyclical. We estimate the relationship between R&D and output using an annual panel of twenty U.S. manufacturing industries from 1958 to 1998. The results indicate that R&D is in fact procyclical, but, interestingly, estimates using demand-shift instruments suggest that it responds asymmetrically to demand shocks. We propose that liquidity constraint is an important cause for the observed procyclicality of R&D. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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  • Min Ouyang, 2011. "On the Cyclicality of R&D," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 542-553, May.
    • Handle: RePEc:tpr:restat:v:93:y:2011:i:2:p:542-553
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