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On the timing of innovation in stochastic Schumpeterian growth models

  • Gadi Barlevy

Recent work has revived the Schumpeterian hypothesis that recessions facilitate innovation and growth. But a major source of productivity growth, research and development, is actually procyclical. This paper argues that while it is optimal to concentrate growth enhancing activities in downturns, dynamic spillovers inherent to the R&D process lead private agents to concentrate too much of their R&D activity in booms, precisely when its social cost is highest. Thus, while previous literature has argued recessions promote growth and intertemporal substitution is a desirable consequence of fluctuations, in the case of R&D recessions discourage growth and intertemporal substitution proves to be a social liability.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-04-11.

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Date of creation: 2004
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Handle: RePEc:fip:fedhwp:wp-04-11
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  1. Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 719-51, August.
  2. Gadi Barlevy & Daniel Tsiddon, 2004. "Earnings inequality and the business cycle," Working Paper Series WP-04-08, Federal Reserve Bank of Chicago.
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  8. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
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  10. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  11. Gadi Barlevy, 2003. "The Cost of Business Cycles Under Endogenous Growth," NBER Working Papers 9970, National Bureau of Economic Research, Inc.
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  14. repec:cup:macdyn:v:2:y:1998:i:3:p:322-44 is not listed on IDEAS
  15. Caballero, Ricardo & Hammour, Mohamad, 1999. "The Cost of Recessions Revisited: A Reverse-Liquidationist View," CEPR Discussion Papers 2331, C.E.P.R. Discussion Papers.
  16. repec:fth:harver:1473 is not listed on IDEAS
  17. Ian King & Arthur Sweetman, 2002. "Procyclical Skill Retooling and Equilibrium Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 704-717, July.
  18. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
  19. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 65-96.
  20. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April.
  21. Francois, P. & Lloyd-Ellis, H., 2001. "Animal Spirits Meets Creative Destruction," Discussion Paper 2001-36, Tilburg University, Center for Economic Research.
  22. David N. DeJong & Beth F. Ingram, 2001. "The Cyclical Behavior of Skill Acquisition," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 536-561, July.
  23. Russell Cooper & John Haltiwanger, 1990. "The Aggregate Implications of Machine Replacement: Theory and Evidence," NBER Working Papers 3552, National Bureau of Economic Research, Inc.
  24. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc.
  25. Erik Canton & Harald Uhlig, 1999. "Growth and the cycle: Creative destruction versus entrenchment," Journal of Economics, Springer, vol. 69(3), pages 239-266, October.
  26. Aghion, Philippe & Saint-Paul, Gilles, 1998. "VIRTUES OF BAD TIMES Interaction Between Productivity Growth and Economic Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 2(03), pages 322-344, September.
  27. Robert E. Hall, 1991. "Labor Demand, Labor Supply, and Employment Volatility," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 17-62 National Bureau of Economic Research, Inc.
  28. Diego Comin & Mark Gertler, 2003. "Medium Term Business Cycles," NBER Working Papers 10003, National Bureau of Economic Research, Inc.
  29. Hall, Robert E., 2000. "Reorganization," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 1-22, June.
  30. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  31. Julian R. Betts & Laurel L. McFarland, 1995. "Safe Port in a Storm: The Impact of Labor Market Conditions on Community College Enrollments," Journal of Human Resources, University of Wisconsin Press, vol. 30(4), pages 741-765.
  32. Patrick Francois & Huw Lloyd-Ellis, 2003. "Animal Spirits Through Creative Destruction," American Economic Review, American Economic Association, vol. 93(3), pages 530-550, June.
  33. Fatas, Antonio, 2000. " Do Business Cycles Cast Long Shadows? Short-Run Persistence and Economic Growth," Journal of Economic Growth, Springer, vol. 5(2), pages 147-62, June.
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