Business cycles and research investment

Mark Funk

Applied Economics, 2006, vol. 38, issue 15, 1775-1782

Abstract: This paper examines the impact of uncertainty and the business cycle on US high-tech manufacturing firms' research investment. Although the reliance on internal financing suggests firms will consider uncertainty and the business cycle when determining their research budget, little is known about how the business cycle and uncertainty influence research investment. Using firm-level data on sales, cash flow, and industry-level indicators of the business cycle, this paper finds that the firm's response to the business depends on the firm's industry and the industry's current location in the business cycle. The data also shows that the business cycle also depresses the firm's reaction to changes in sales and cash flow. Uncertainty clearly reduces research efforts, although non-linearly.

Date: 2006
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DOI: 10.1080/00036840500427098

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