On the Cyclicality of Research and Development
AbstractEconomists 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.
CitationBarlevy, Gadi. 2007. "On the Cyclicality of Research and Development." American Economic Review, 97 (4): 1131-1164. DOI: 10.1257/aer.97.4.1131
- E32 Business Fluctuations; Cycles
- L26 Entrepreneurship
- O32 Management of Technological Innovation and R&D
- O47 Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence