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Intrinsic Business Cycles with Pro-Cyclical R&D

Author

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  • Francois, Patrick
  • Lloyd-Ellis

Abstract

Recent empirical work Þnds that R&D expenditures are quite procyclical, even for Þrms that are not credit-constrained during downturns. This has been taken as strong evidence against Schumpeterian-style theories of business cycles that emphasize the idea that downturns in production may be good times to allocate labor towards innovative activities. Here we argue that the procyclicality of R&D investment is, in fact, quite consistent with at least one of these theories. In our analysis, we emphasize three key features of R&D investment relative to other types of innovative activity: (1) it uses knowledge intensively, (2) it is a long-term investment with uncertain applications and (3) it suffers from diminishing returns over time.

Suggested Citation

  • Francois, Patrick & Lloyd-Ellis, 2006. "Intrinsic Business Cycles with Pro-Cyclical R&D," Queen's Economics Department Working Papers 273578, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273578
    DOI: 10.22004/ag.econ.273578
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    Cited by:

    1. is not listed on IDEAS
    2. repec:lic:licosd:23909 is not listed on IDEAS
    3. Michelle Alexopoulos, 2011. "Read All about It!! What Happens Following a Technology Shock?," American Economic Review, American Economic Association, vol. 101(4), pages 1144-1179, June.

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    Keywords

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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