Inflation and R&D investment

Rodrigo Costamagna

Journal of Innovation Economics, 2015, vol. n°17, issue 2, 143-163

Abstract: This paper aims to complement the literature on research and development (R&D) investments by exploring the potential effects of the inflation rates behavior on firm?s ability to invest in R&D, a simple and specific relationship that has received little attention in the related literature. Inflation is expected to affects firm?s incentives to engage in the allocation of resource to R&D projects due to price instability and future pay-off uncertainty. This paper found empirical evidence of the negative effects of high inflation rates on business? R&D investments. Also, the cross-section estimates showed a negative and highly significant impact of inflation on R&D investments in low-and middle-income countries as expected. Thus, our findings send a message of caution to policy makers regarding the incentives designed to promote innovation as growth basis of countries. JEL Codes: O31, E31, C23

Keywords: R&D investment; inflation; panel data evidence (search for similar items in EconPapers)
JEL-codes: C23 E31 O31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (6)

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