On the Cyclicality of Research and Development
Barlevy, Gadi. 2007. "On the Cyclicality of Research and Development."
American Economic Review,
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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