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R&D and firm resilience during bad times

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  • Apoorva Gupta

Abstract

Can being innovative help firms to shield themselves from the disruptive effects of a crisis? Using firm-level data for the Spanish manufacturing sector, this paper finds that innovative firms suffered considerably less compared to non-innovative firms during the Great Recession. This effect is explained by innovative firms differentiating their products to adapt to an unexpected rapid decline in economic activity. The data does not support alternative mechanisms such as reduction in marginal cost of production with process innovation, better access to capital, difference in labour moving costs, or higher technological diversification for innovative firms. The results provide evidence of the role of R&D in making firms dynamically capable and resilient to large negative shocks, adding another element to its well established role of facilitating growth through innovation and learning.

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  • Apoorva Gupta, 2019. "R&D and firm resilience during bad times," Discussion Papers 2019-12, University of Nottingham, GEP.
    • Handle: RePEc:not:notgep:2019-12
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    Keywords

    R&D; crisis; resilience; product differentiation; dynamic capability;
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