The Symmetry and Cyclicality of R&D Spending in Advanced Economies

This paper explores the impact of cyclical macroeconomic fluctuations on corporate R&D spending. Most existing studies are conducted at the industry or firm level and find procyclical corporate R&D. Some of these studies also provide evidence suggesting credit constraints play an important role in explaining the cyclical behavior of R&D. Our analysis of the relationship between GDP, credit, and R&D begins with a theoretical model that allows for the possibility of credit constraints. We then turn to an empirical analysis of a panel of 22 advanced economies. Our most robust empirical finding is that R&D is symmetrically procyclical even after controlling for credit market conditions. We conclude that credit market conditions are not sufficient to fully explain the procyclical behavior of R&D and that procyclical incentives for innovative activity are also likely to play an important role