Research and development as an initiator of fixed capital investment

Andrin Spescha () and Martin Woerter
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Andrin Spescha: ETH Zurich, KOF Swiss Economic Institute

Journal of Evolutionary Economics, 2021, vol. 31, issue 1, No 5, 117-145

Abstract: Abstract This paper investigates the causal relationship between firms’ R&D expenditures and their investments in fixed capital. It argues that a firm’s R&D expenditures lead to inventions that in turn trigger investments in fixed capital, as the manufacturing of newly invented goods or services requires the creation of additional production capacities. Using firm-level panel data ranging from 1990 to 2014, the paper applies a 2SLS approach to uncover the direction of causality between R&D expenditures and fixed capital investment. To obtain exogenous instruments, the paper exploits shocks to i) technological opportunities and ii) innovative sales of capital goods industries. The results reveal that firms’ R&D expenditures cause subsequent investments in fixed capital, while there is no evidence of the reverse effect. An increase in R&D expenditures of 1% leads to an increase in fixed capital investments between 0.4% and 0.6%. Therefore, increasing R&D expenditures may not only be valuable for long-term economic growth but also, via fixed capital investment, provide the economy with positive stimuli in times of prolonged stagnation.

Keywords: R&D expenditures; Fixed capital investment; Business cycle; Technological opportunities (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Working Paper: Research and Development as an Initiator of Fixed Capital Investment (2016)
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DOI: 10.1007/s00191-020-00681-9

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