Intrinsic Business Cycles with Pro-Cyclical R&D

Patrick Francois () and Huw Lloyd-Ellis

No 273578, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: Recent empirical work Þnds that R&D expenditures are quite procyclical, even for Þrms that are not credit-constrained during downturns. This has been taken as strong evidence against Schumpeterian-style theories of business cycles that emphasize the idea that downturns in production may be good times to allocate labor towards innovative activities. Here we argue that the procyclicality of R&D investment is, in fact, quite consistent with at least one of these theories. In our analysis, we emphasize three key features of R&D investment relative to other types of innovative activity: (1) it uses knowledge intensively, (2) it is a long-term investment with uncertain applications and (3) it suffers from diminishing returns over time.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 30
Date: 2006-01
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Working Paper: Intrinsic Business Cycles With Pro-cyclical R&d (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273578

DOI: 10.22004/ag.econ.273578

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