Energy prices and induced innovation
The received theory of induced innovation implies that input prices, as well as other economic factors such as demand and market structure, determine the extent and nature of the optimizing firm's allocation of resources to research activity. This paper investigates the effects of large increases in the prices of energy and other intermediate materials during the early to mid 1970s on the amount of R&D performed by U.S. manufacturing firms. The evidence indicates that industries most affected by these price increases maintained the highest growth rate of R&D expenditure, holding constant output growth.