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An Empirical Examination of the Procyclicality of R&D Investment and Innovation


  • Kira R. Fabrizio

    (Boston University School of Management)

  • Ulya Tsolmon

    (Duke University)


The Schumpeterian opportunity cost hypothesis predicts that firms concentrate innovative activities in recessions. However, empirical evidence suggests that innovative activities are procyclical. Theory proposes that firms shift R&D investments and innovation from recessions to booms to maximize returns by capturing high-demand periods before imitators compete away rents. This paper provides the first empirical test of these predictions. Results indicate that R&D spending is more procyclical in industries with faster obsolescence, where matching invention to demand is more valuable, and innovation is more procyclical in industries with weaker IP protection, where imitation poses a greater threat. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • 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.
  • Handle: RePEc:tpr:restat:v:96:y:2014:i:4:p:662-675

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    Cited by:

    1. repec:eee:respol:v:47:y:2018:i:7:p:1321-1333 is not listed on IDEAS
    2. repec:eee:ecolet:v:158:y:2017:i:c:p:73-76 is not listed on IDEAS
    3. Uluc Aysun, 2019. "Volatility costs of R&D," Working Papers 2019-02, University of Central Florida, Department of Economics.
    4. 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.
    5. Bredemeier, Christian & Juessen, Falko & Winkler, Roland, 2017. "Man-cessions, fiscal policy, and the gender composition of employment," Economics Letters, Elsevier, vol. 158(C), pages 73-76.
    6. repec:wfo:monber:y:2019:i:3:p:173-182 is not listed on IDEAS
    7. Miroslav Gabrovski, 2018. "Simultaneous Innovation and the Cyclicality of R&D," Working Papers 201813, University of Hawaii at Manoa, Department of Economics.
    8. Gabrovski, Miroslav, 2017. "Coordination Frictions and Economic Growth," MPRA Paper 81298, University Library of Munich, Germany, revised 17 Jul 2017.
    9. Pellens, Maikel & Peters, Bettina & Hud, Martin & Rammer, Christian & Licht, Georg, 2018. "Public investment in R&D in reaction to economic crises: A longitudinal study for OECD countries," ZEW Discussion Papers 18-005, ZEW - Leibniz Centre for European Economic Research.
    10. Bernhard Dachs & Martin Hud & Christian Köhler & Bettina Peters, 2016. "Employment Effects of Innovations over the Business Cycle: Firm-Level Evidence from European Countries," CREA Discussion Paper Series 16-20, Center for Research in Economic Analysis, University of Luxembourg.
    11. Michel Dumont, 2015. "Working Paper 05-15 - Evaluation of federal tax incentives for private R&D in Belgium: An update," Working Papers 1505, Federal Planning Bureau, Belgium.
    12. repec:eee:respol:v:47:y:2018:i:10:p:1933-1944 is not listed on IDEAS
    13. repec:wfo:monber:y:2019:i:3 is not listed on IDEAS
    14. Hans van Ophem & Noud van Giersbergen & Kees Jan van Garderen & Maurice Bun, 2019. "The cyclicality of R&D investment revisited," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(2), pages 315-324, March.

    More about this item


    cost hypothesis; recession; investments; innovation; procyclical; imitations;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development


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