R&D in boom and boost: evidence from the World Bank Financial Crisis Survey

Kadri M�nnasoo () and Jaanika Meriküll

No wp2011-07, Bank of Estonia Working Papers from Bank of Estonia

Abstract: The full implications of the global financial crisis of 2008-2009 are yet to be revealed. The crucial question is whether a crisis of such severe magnitude will set "cleansing mechanisms" into motion as suggested by the opportunity cost argument of R&D, or rather destroy the long-term productivity enhancing incentives? The World Bank Financial Crisis Survey collects direct self-reported measures of firms' credit frictions and R&D during 2009-2010 from six countries: Bulgaria, Latvia, Lithuania, Hungary, Romania and Turkey. Employing this dataset, we seek evidence of how the firms' R&D responded to the negative demand shock and credit contraction at the time of the crisis. Looking at two distinct episodes, the sustained economic growth in 2001-2007 and the sudden slump in 2009-2010, we observe a paradigm shift in firms' R&D decisions: whilst the R&D is counter-cyclical during the pre-crisis period, a pro-cyclical pattern emerges during the crisis

Keywords: R&D cyclicality; demand shocks; credit constraints; financial crisis (search for similar items in EconPapers)
JEL-codes: E32 G31 O30 O52 (search for similar items in EconPapers)
Date: 2011-07-13, Revised 2011-07-13
New Economics Papers: this item is included in nep-ino
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