The symmetry and cyclicality of R&D spending in advanced economies
- 129 Downloads
Abstract
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.
Keywords
R&D spending Credit constraints Business cycleNotes
Acknowledgements
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.
References
- Aghion P, Howitt P, Mayer-Foulkes D (2005) The effect of financial development on convergence: theory and evidence. Q J Econ 120(1):173–221Google Scholar
- Aghion P, Angeletos GM, Banerjee A, Manova K (2010) Volatility and growth: credit constraints and the composition of investment. J Monet Econ 57(3):246–265CrossRefGoogle Scholar
- Aghion P, Askenazy P, Berman N, Cette G, Eymard L (2012) Credit constraints and the cyclicality of R&D investment: evidence from France. J Eur Econ Assoc 10(5):1001–1024CrossRefGoogle Scholar
- Anzoategui D, Comin D, Gertler M, Martinez J (2016) Endogenous technology adoption and R&D as sources of business cycle persistence. NBER working paper no. 2205Google Scholar
- Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58(2):277–297CrossRefGoogle Scholar
- Barlevy G (2007) On the cyclicality of research and development. Am Econ Rev 97(4):1131–1164CrossRefGoogle Scholar
- Blanchard O, Cerutti E, Summers L (2015) Inflation and activity—two explorations and their monetary policy implications. NBER working paper no. 21726Google Scholar
- Borio C (2014) The financial cycle and macroeconomics: what have we learnt? J Bank Finance 45:182–198CrossRefGoogle Scholar
- Comin D, Gertler M (2006) Medium-term business cycles. Am Econ Rev 96(3):523–551CrossRefGoogle Scholar
- Dembiermont C, Drehmann M, Muksakunratana S (2013) How much does the private sector really borrow? A new database for total credit to the private non-financial sector. BIS Q Rev, March 2013, 65–81Google Scholar
- Fabrizio K, Tsolmon U (2014) An empirical examination of the procyclicality of R&D investment and innovation. Rev Econ Stat 96(4):662–675CrossRefGoogle Scholar
- Kabukcuoglu Z (2017) The cyclical behavior of R&D investment during the great recession. Empir Econ. https://doi.org/10.1007/s00181-017-1358-7 CrossRefGoogle Scholar
- Ouyang M (2011) On the cyclicality of R&D. Rev Econ Stat 93(2):542–553CrossRefGoogle Scholar
- Reifschneider D, Wascher W, Wilcox D (2015) Aggregate supply in the United States: recent developments and implications for the conduct of monetary policy. IMF Econ Rev 63(1):71–109CrossRefGoogle Scholar
- Schumpeter J (1939) Business cycles. McGraw-Hill, New YorkGoogle Scholar
- Walde K, Woitek U (2004) R&D spending in G7 countries and the implications for endogenous fluctuations and growth. Econ Lett 82:91–97CrossRefGoogle Scholar
- Westerlund J (2007) Testing for error correction in panel data. Oxf Bull Econ Stat 69(6):709–748CrossRefGoogle Scholar
- Wooldridge J (2002) Econometric analysis of cross section and panel data. MIT Press, CambridgeGoogle Scholar