R&D cyclicality and composition effects: a unifying approach

Research output: Working paper

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Abstract

Existing empirical studies do not concur on whether R&D spending is procyclical or countercyclical: the former hypothesis is supported by studies of aggregate R&D spending, whereas the latter is vindicated by firm-level evidence. In this paper, we reconcile the two facts by advancing a general equilibrium framework, in which, while a single firm's R&D spending profile is countercyclical, aggregate R&D spending is procyclical owing to procyclical fluctuations in the number of R&D performers. Our findings suggest that economic crises might be beneficial for economic performance by fostering individual R&D effort. An advantage of our framework is that it brings together conflicting pieces of empirical evidence, while incorporating and building upon Schumpeter's hypothesis of countercyclical innovation.
Original languageEnglish
Number of pages32
Publication statusPublished - 27 Sept 2017

Publication series

NameCDMA Working Paper
No.1705

Keywords

  • Economic cycles
  • Opportunity cost hypothesis
  • Procyclicality of R&D
  • Countercyclicality of R&D

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