The Pro-cyclical R&D Puzzle: Technology Shocks and Pro-cyclical R&D Expenditure

Abstract: Empirically R&D expenditure moves pro-cyclically, but the pro- cyclicality is a puzzle from the Schumpeterian point of view. The paper examines the cyclical property of R&D expenditure in the context of endogenous growth, and concludes that (i) substitutability between investing in physical capital and investing in technology/knowledge is a key of the cyclical property of R&D, (ii) basically technology shocks accompany counter-cyclical R&D and demand shocks accompany pro-cyclical R&D, and (iii) the easiest way to solve the pro-cyclical R&D puzzle is to abandon the conjecture that business cycles are generated mainly by technology shocks.

Keywords: R&D; Technology shock; Business cycle; Schumpeterian; Endogenous growth (search for similar items in EconPapers)
JEL-codes: E32 O30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino and nep-mac
Date: Written 2005-07-12
Note: Type of Document - pdf; pages: 32
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