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American Economic Review: Vol. 97 No. 4 (September 2007)
AER Volume. 97, Issue 4 | 
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On the Cyclicality of Research and Development
Article Citation
Barlevy, Gadi. 2007. "On the Cyclicality of Research and Development."
American Economic Review,
97(4): 1131-1164.
DOI: 10.1257/aer.97.4.1131
DOI: 10.1257/aer.97.4.1131
Abstract
Economists have recently argued recessions play a useful role in fostering growth.
Yet a major source of growth, R&D, is procyclical. This paper argues one reason
for procyclical R&D is a dynamic externality inherent in R&D that makes entrepreneurs
short-sighted and concentrate their innovation in booms, even when it is
optimal to concentrate it in recessions. Additional forces may imply that procyclical
R&D is desirable, but equilibrium R&D is likely to be too procyclical, and macroeconomic
shocks are likely to have overly persistent effects on output and make
growth more costly than in the absence of such shocks.
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Authors
Barlevy, Gadi
