Working Paper: NBER ID: w26248
Authors: Ravi Bansal; Mariano Max Croce; Wenxi Liao; Samuel Rosen
Abstract: Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on medium-term growth and welfare.
Keywords: Uncertainty; Reallocation; Growth; R&D; Investment
JEL Codes: E3; E6; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D investment (O32) | market value of patents (O34) |
| market value of patents (O34) | innovation-oriented investments (O35) |
| Government capital becomes safer alternative during heightened uncertainty (G19) | reallocation away from private R&D investments (O39) |
| Uncertainty shocks (D89) | R&D investment (O32) |
| Uncertainty shocks (D89) | reallocation towards less innovative capital (O39) |