Financial Constraints :Routine Versus Cutting EdgeR&D Investment

We analyze financial constraints for R&D, where we account for heterogeneityamong investments which has been neglected in previous literature. According toeconomic theory, investments should be distinguished by their degree ofuncertainty, e.g. routine R&D versus cutting-edge R&D. Financial constraintsshould be more binding for cutting-edge R&D than for routine R&D. Using paneldata we find that R&D spending of firms devoting a significant fraction of R&Dto cutting-edge projects is curtailed by credit constraints while routine R&Dinvestments are not. This has important policy implications with respect to thedistribution of R&D subsidies in the economy.