The Review of Economics and Statistics Vol. 96 No. 4 2014
An Empirical Examination of the Procyclicality of R&D Investment and Innovation
Abstract
The Schumpeterian opportunity cost hypothesis predicts that firms concentrate innovative activities in recessions. However, empirical evidence suggests that innovative activities are procyclical. Theory proposes that firms shift R&D investments and innovation from recessions to booms to maximize returns by capturing high-demand periods before imitators compete away rents. This paper provides the first empirical test of these predictions. Results indicate that R&D spending is more procyclical in industries with faster obsolescence, where matching invention to demand is more valuable, and innovation is more procyclical in industries with weaker IP protection, where imitation poses a greater threat.
- DOI
- 10.1162/rest_a_00412
- Volume
- 96
- Issue
- 4
- Pages
- 662-675
- Language
- en
- Sources
- openalex crossref