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On the timing of innovation in stochastic Schumpeterian growth models

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  • Gadi Barlevy

Abstract

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.

Suggested Citation

  • Gadi Barlevy, 2004. "On the timing of innovation in stochastic Schumpeterian growth models," Working Paper Series WP-04-11, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-04-11
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    Cited by:

    1. Diego A. Comin, 2008. "An Exploration of the Japanese Slowdown during the 1990s," NBER Working Papers 14509, National Bureau of Economic Research, Inc.
    2. Gadi Barlevy, 2004. "The Cost of Business Cycles and the Benefits of Stabilization: A Survey," NBER Working Papers 10926, National Bureau of Economic Research, Inc.
    3. Aghion, Philippe & Angeletos, George-Marios & Banerjee, Abhijit & Manova, Kalina, 2010. "Volatility and growth: Credit constraints and the composition of investment," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 246-265, April.
    4. Masino, Serena, 2012. "Macroeconomic instability and the incentive to innovate," MPRA Paper 38766, University Library of Munich, Germany.
    5. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, vol. 96(3), pages 523-551, June.
    6. Ander Perez, 2010. "Credit Constraints, Firms' Precautionary Investment, and the Business Cycle," 2010 Meeting Papers 1004, Society for Economic Dynamics.
    7. Edinaldo Tebaldi, 2011. "The Determinants of High-Technology Exports: A Panel Data Analysis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(4), pages 343-353, December.
    8. Masino, Serena, 2012. "Macroeconomic instability and the incentive to innovate," MPRA Paper 38830, University Library of Munich, Germany.
    9. Ana Balcao Reis & Joao Ejarque, 2005. "(Relative Price) Lessons from Taking an AK Model to the Data," 2005 Meeting Papers 312, Society for Economic Dynamics.
    10. Aghion, Philippe & Hemous, David & Kharroubi, Enisse, 2009. "Credit Constraints, Cyclical Fiscal Policy and Industry Growth," CEPR Discussion Papers 7359, C.E.P.R. Discussion Papers.
    11. Muhammad Jamil & Erich W. Streissler & Robert M. Kunst, 2012. "Exchange Rate Volatility and its Impact on Industrial Production, Before and After the Introduction of Common Currency in Europe," International Journal of Economics and Financial Issues, Econjournals, vol. 2(2), pages 85-109.
    12. Daniel Giedeman & Paul Isely & Gerald Simons, 2006. "Innovation and the Business Cycle: A Comparison of the U.S. Semiconductor and Automobile Industries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 12(2), pages 277-286, May.
    13. Taiji Harashima, 2005. "The Pro-cyclical R&D Puzzle: Technology Shocks and Pro-cyclical R&D Expenditure," Macroeconomics 0507012, EconWPA, revised 12 Jul 2005.
    14. María Elisa Farías, 2008. "Growth and Volatility in Developing Countries: The Role of Credits and Fiscal Policy," Working Papers Central Bank of Chile 488, Central Bank of Chile.
    15. Rammer, Christian, 2012. "Schwerpunktbericht zur Innovationserhebung 2010: Management von Innovationsprojekten - Auswirkungen der Wirtschaftskrise," ZEW Dokumentationen 12-03, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    16. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
    17. Ander Pérez Orive, 2010. "Credit Constraints, Firms' Precautionary Investment, and the Business Cycle," Working Papers 506, Barcelona Graduate School of Economics.
    18. Christian Rammer, 2011. "Auswirkungen der Wirtschaftskrise auf die Innovationstätigkeit der Unternehmen in Deutschland," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 80(3), pages 13-34.
    19. Susanto Basu & John G. Fernald, 2009. "What do we know (and not know) about potential output?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 187-214.
    20. repec:kap:iaecre:v:12:y:2006:i:2:p:277-286 is not listed on IDEAS
    21. Simona Bovha-Padilla & Joze P. Damijan & Jozef Konings, 2009. "Financial Constraints and the Cyclicality of R&D Investment:Evidence from Slovenia," LICOS Discussion Papers 23909, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

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    Keywords

    Research and development;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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