Cyclicality of the R&D Share of Investment in the EU over the Period before and after the Crisis

In this paper we investigate the co-movements between the R&D share of total investment and GDP growth in different EU areas over the period 1999-2014. Our empirical analysis shows that only core countries display a common counter-cyclical mechanism leading to an increased share of R&D over prolonged downturns. The lack of any counter-cyclical pattern of R&D share over the evolution of GDP growth in periphery countries makes this area highly vulnerable to persistent recessions, with potentially harmful consequences for longer term growth. For recent EU members the evidence of R&D share pro-cyclicality should be evaluated in the light of the catching-up process still at work in this area. Our analysis suggests that any successful EU innovation policy should not disregard the potential divergence in R&D performance due to the dispersion of the counter-cyclical properties of the share of productivity enhancing activities in the different EU areas.