Article ID Journal Published Year Pages File Type
986422 Review of Economic Dynamics 2009 25 Pages PDF
Abstract

Recent empirical work finds that R&D expenditures are quite pro-cyclical even for firms that are not credit-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 pro-cyclicality 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.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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