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Macroeconomic Shocks and Corporate R&D

Macroeconomic Shocks and Corporate R&D AbstractThis paper investigates the impact of output and credit market shocks on R&D spending in advanced economies and builds on the commonly accepted view that credit constraints lead to procyclical R&D spending. A theoretical model is developed where output and credit shocks are treated separately, though these shocks may be highly correlated. The estimation procedure utilizes a panel vector autoregression (VAR) in order to empirically identify the role of credit market shocks separately from the output shocks more commonly studied in the existing literature. The primary empirical findings can be summarized as follows: (1) R&D responds pro-cyclically to output shocks at the macroeconomic level, and (2) R&D co-moves positively with credit. More concretely, the results indicate that negative output shocks induce a simultaneous and subsequent contraction in credit and R&D consistent with a model where credit constraints drive cyclical adjustments to R&D. The impact of output and credit shocks on R&D are economically significant and a simulation exercise suggests the shocks associated with the global financial crisis have reduced US R&D by 10% relative to the pre-crisis path. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Macroeconomics de Gruyter

Macroeconomic Shocks and Corporate R&D

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Publisher
de Gruyter
Copyright
©2017 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1935-1690
eISSN
1935-1690
DOI
10.1515/bejm-2016-0090
Publisher site
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Abstract

AbstractThis paper investigates the impact of output and credit market shocks on R&D spending in advanced economies and builds on the commonly accepted view that credit constraints lead to procyclical R&D spending. A theoretical model is developed where output and credit shocks are treated separately, though these shocks may be highly correlated. The estimation procedure utilizes a panel vector autoregression (VAR) in order to empirically identify the role of credit market shocks separately from the output shocks more commonly studied in the existing literature. The primary empirical findings can be summarized as follows: (1) R&D responds pro-cyclically to output shocks at the macroeconomic level, and (2) R&D co-moves positively with credit. More concretely, the results indicate that negative output shocks induce a simultaneous and subsequent contraction in credit and R&D consistent with a model where credit constraints drive cyclical adjustments to R&D. The impact of output and credit shocks on R&D are economically significant and a simulation exercise suggests the shocks associated with the global financial crisis have reduced US R&D by 10% relative to the pre-crisis path.

Journal

The B.E. Journal of Macroeconomics – de Gruyter

Published: Jul 15, 2017

References

  • Another Look at the Instrumental Variable Estimation of Error-Components Models
  • Volatility and Growth: Credit Constraints and the Composition of Investment
  • Credit Constraints and the Cyclicality of R&D Investment: Evidence from France
  • Financial Intermediation and Growth: Causality and Causes
  • Dualism and Macroeconomic Volatility
  • The Financial Cycle and Macroeconomics: What Have We Learnt?
  • US Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound
  • Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity
  • Accounting for Trends in Productivity and R&D: A Schumpeterian Critique of Semi-Endogenous Growth Theory
  • Financial Development and Dynamic Investment Behavior: Evidence from Panel VAR