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On the Cyclicality of R&D Activities

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  • Mand, Matthias

Abstract

While an opportunity cost argument suggests that recessions are ideal times to undergo R&D aimed at enhancing productivity, empirical measures of U.S. R&Dactivity are procyclical. To resolve this discrepancy, I propose a calibrated real business cycle model featuring R&D-based growth through horizontal innovations. The model is used to quantitatively analyze the impact of business cycle shocks under various specifications of the R&D process. I find that the specification of R&D inputs is essential for the cyclicality of R&D activities. First, the popular knowledge-driven specification of R&D has a hard time to generate both procyclical R&D investment and procyclical R&D labor at the same time. Second, the calibrated multi-input specification generates procyclical R&D investment as well as procyclical employment of scientists. In addition, the endogenous growth mechanism gives rise to amplification of business cycle shocks.

Suggested Citation

  • Mand, Matthias, 2016. "On the Cyclicality of R&D Activities," VfS Annual Conference 2016 (Augsburg): Demographic Change 145472, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145472
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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