Financial Constraints: Routine Versus Cutting Edge R&D Investment

Dirk Czarnitzki and Hanna Hottenrott

Journal of Economics & Management Strategy, 2011, vol. 20, issue 1, 121-157

Abstract: We analyze financial constraints on R&D, where we account for heterogeneity among investments that has been neglected in previous literature. According to economic theory, investments should be distinguished by their degree of uncertainty, e.g. routine R&D versus cutting‐edge R&D. Financial constraints should be more binding for cutting‐edge R&D than for routine R&D. Using panel data we find that R&D spending of firms devoting a significant fraction of R&D to cutting‐edge projects is curtailed by credit constraints while routine R&D investments are not. This has important policy implications with respect to the distribution of R&D subsidies in the economy.

Date: 2011
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https://doi.org/10.1111/j.1530-9134.2010.00285.x

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Working Paper: Financial Constraints: Routine Versus Cutting Edge R&D Investment (2008)
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