The symmetry and cyclicality of R&D spending in advanced economies
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This paper explores the impact of cyclical macroeconomic fluctuations on corporate R&D spending. Most existing studies are conducted at the industry or firm level and find procyclical corporate R&D. Some of these studies also provide evidence suggesting credit constraints play an important role in explaining the cyclical behavior of R&D. Our analysis of the relationship between GDP, credit, and R&D begins with a theoretical model that allows for the possibility of credit constraints. We then turn to an empirical analysis of a panel of 22 advanced economies. Our most robust empirical finding is that R&D is symmetrically procyclical even after controlling for credit market conditions. We conclude that credit market conditions are not sufficient to fully explain the procyclical behavior of R&D and that procyclical incentives for innovative activity are also likely to play an important role.
KeywordsR&D spending Credit constraints Business cycle
The authors thank the editor and an anonymous referee along with participants at the Western Economics Association International’s Annual Conference for their helpful comments and suggestions.
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