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Cyclical Persistence and the Cyclicality of R&D

Author

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  • Min Ouyang

    (Department of Economics, University of California-Irvine)

Abstract
We propose cyclical persistence as an important factor influencing the timing of innovation. Schumpeter (1939) argues innovation should be concentrated during recessions when its marginal opportunity cost as forgone output is low. We propose the timing of innovation should be affected additionally by innovation's marginal expected return. A simple theory is presented, showing higher persistence raises the cyclical response in innovation's marginal expected return, makes the dominance of innovation's marginal opportunity cost more difficult, and therefore drives R&D pro-cyclical. We carry the theory to an industry panel of R&D and output. Our estimation results suggest persistence helps to account for the observed cross-industry differences in R&D's cyclicality.

Suggested Citation

  • Min Ouyang, 2010. "Cyclical Persistence and the Cyclicality of R&D," Working Papers 101104, University of California-Irvine, Department of Economics, revised Mar 2011.
    • Handle: RePEc:irv:wpaper:101104
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    References listed on IDEAS

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    2. Di Ubaldo, Mattia, 2016. "Firms and trade in downturns," Economics PhD Theses 0416, Department of Economics, University of Sussex Business School.
    3. He, Sicheng, 2022. "Growing through endogenous innovation cycles," Journal of Macroeconomics, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Business cycles; Growth; Cyclical persistence; R&D;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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