Business cycles and investment in intangibles: evidence from Spanish firms

This paper tests the opportunity-cost theory using a panel of Spanish firms during the period 1991-2010. Under this theory, productivity-enhancing activities, such as R&D investment, should increase during downturns because of the fall in their relative cost – in terms of forgone output –. This would imply that business cycles may have a (positive) long-term impact on productivity growth. In the spirit of Aghion et al. (2007) we allow the impact of the cycle on R&D to vary between firms with different access to credit, finding that credit constraints may reverse the countercyclicality of R&D, even if it is optimal for them. We go one step further and explore whether other productivity-enhancing activities, like on-the-job training and the purchase of patents, follow a similar pattern. We find that on-the-job training expenditures are countercyclical and, unlike R&D investment, credit constraints seem not to affect their cyclical behaviour. Investments in other intangibles, such as patent purchases, are found to be acyclical, also irrespective of financial constraints, which could suggest some kind of substitution between R&D and patent purchases over the cycle. Finally, complementarities between the different intangible investments and the traditional productive factors (labour and capital) are also investigated via production function estimates, in order to assess potential indirect effects of the cycle on long-run growth