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Simultaneous Innovation and the Cyclicality of R&D

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  • Miroslav Gabrovski

    (University of Hawaii at Manoa Ministry of Strategy and Finance, Republic of Korea)

Abstract

There is ample evidence that R&D investment is mildly pro-cyclical. Whereas the existing literature can explain the positive correlation between investment in R&D and output, the moderate strength of the relationship remains under-explored. This paper develops a stochastic expanding-variety endogenous growth model that accounts for the observed mild pro-cyclicality of R&D. In the model, several firms may simultaneously make the same innovation. Research projects innovated by many firms simultaneously are of higher quality, on average, and contribute relatively more to the expansion of the knowledge stock in the economy. This delivers an endogenous mechanism that breaks the otherwise perfect correlation between R&D and output. A calibration of our model closely matches the cyclical properties of R&D.

Suggested Citation

  • Miroslav Gabrovski, 2018. "Simultaneous Innovation and the Cyclicality of R&D," Working Papers 201813, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:201813
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    References listed on IDEAS

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    More about this item

    Keywords

    Simultaneous Innovation; Research and Development; Medium-Term Cycles; Macroeconomic Fluctuations; Endogenous Cycles;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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