Intrinsic Business Cycles with Pro-Cyclical R&D
Recent empirical work finds that R&D expenditures are quite procyclical, even for firms that are not redit-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.
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- Nickell, Stephen & Nicolitsas, Daphne & Patterson, Malcolm, 2001.
" Does Doing Badly Encourage Management Innovation?,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 63(1), pages 5-28, February.
- Nickell, S. & Nicolitasa, D. & Patterson, M., 1995. "Does Doing Badly Encourage Management Innovation?," Economics Series Working Papers 99175, University of Oxford, Department of Economics.
- Klaus Wälde, 2005. "Endogenous Growth Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 867-894, 08.
- Gadi Barlevy, 2005. "Why don't recessions encourage more R&D spending?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Nov. Full references (including those not matched with items on IDEAS)