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Inflation and R&D investment

Author

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  • Rodrigo Costamagna

Abstract

This paper aims to complement the literature on research and development (R&D) investments by exploring the potential effects of the inflation rates behavior on firm?s ability to invest in R&D, a simple and specific relationship that has received little attention in the related literature. Inflation is expected to affects firm?s incentives to engage in the allocation of resource to R&D projects due to price instability and future pay-off uncertainty. This paper found empirical evidence of the negative effects of high inflation rates on business? R&D investments. Also, the cross-section estimates showed a negative and highly significant impact of inflation on R&D investments in low-and middle-income countries as expected. Thus, our findings send a message of caution to policy makers regarding the incentives designed to promote innovation as growth basis of countries. JEL Codes: O31, E31, C23

Suggested Citation

  • Rodrigo Costamagna, 2015. "Inflation and R&D investment," Journal of Innovation Economics, De Boeck Université, vol. 0(2), pages 143-163.
    • Handle: RePEc:cai:jiedbu:jie_017_0143
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    Citations

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    Cited by:

    1. KOUAKOU, Dorgyles C.M. & YEO, Kolotioloma I.H., 2023. "Can innovation reduce the size of the informal economy? Econometric evidence from 138 countries," MPRA Paper 119264, University Library of Munich, Germany.
    2. Óscar Afonso, 2022. "Growth and wage effects of the monetary policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4058-4084, October.
    3. Trabelsi Ramzi & Jouini Wiem, 2019. "Causality Nexus between Economic Growth, Inflation and Innovation," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(1), pages 35-58, March.
    4. Muhammad Usman & Rizwan Shabbir & Ilyas Ahmad & Ahsan Zubair, 2022. "Host Countries’ Institutional Environment and Multinational Enterprises: Does Home-Host Developmental Status Matter?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(4), pages 2640-2664, December.
    5. Jingyun Zhang & Guangping Liu & Xueyuan Li & Han Jiang, 2020. "The transmission mechanism of the housing price fluctuations on the global value chain position of manufacturing-evidence from China," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-14, February.
    6. Arawatari, Ryo & Hori, Takeo & Mino, Kazuo, 2018. "On the nonlinear relationship between inflation and growth: A theoretical exposition," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 79-93.

    More about this item

    Keywords

    R&D investment; inflation; panel data evidence;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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