Schumpeterian Business Cycles with Pro-Cyclical R&D

Patrick Francois () and Huw Lloyd-Ellis

Review of Economic Dynamics, 2009, vol. 12, issue 4, 567-591

Abstract: Recent empirical work finds that R&D expenditures are quite procyclical, even for firms 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 implemented knowledge intensively, (2) it is a long-term investment with uncertain applications and (3) it suffers from diminishing returns over time. (Copyright: Elsevier)

Keywords: Endogenous growth; Endogenous cycles; Research and development; Commercialization (search for similar items in EconPapers)
JEL-codes: E32 O31 O40 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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DOI: 10.1016/j.red.2009.02.004

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