Working Paper: NBER ID: w10741
Authors: Gadi Barlevy
Abstract: Recent work has revived the Schumpeterian hypothesis that recessions facilitate innovation and growth. But a major source of productivity growth, research and development, is actually procyclical. This paper argues that while it is optimal to concentrate growth-enhancing activities in downturns, dynamic spillovers inherent to the R&D process lead private agents to concentrate too much of their R&D activity in booms, precisely when its social cost is highest. Thus, while previous literature has argued recessions promote growth and intertemporal substitution is a desirable consequence of fluctuations, in the case of R&D recessions discourage growth and intertemporal substitution proves to be a social liability.
Keywords: innovation; growth; R&D; Schumpeterian; business cycles
JEL Codes: E32; O3; D62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic cycles (E32) | R&D activities (O32) |
| Recessions (E32) | R&D activities (O32) |
| R&D activities (O32) | Economic growth (O49) |
| Procyclical behavior of R&D (O39) | Misallocation of resources (D61) |
| Misallocation of resources (D61) | Social liability (K13) |