Abstract
Models of creative destruction assume that recessions are periods of reallocation and disruption, generating new ideas that catapult new firms to the frontier. However, current empirical evidence suggests that research and development (R&D) expenditures and patenting are procyclical, not countercyclical. In this paper, we introduce new insights to enrich this debate. First, using panel data on the quality of innovation between 1980 and 2019, we document that the quality of innovation is countercyclical: Innovations produced during busts have a larger effect on the path of future research than those developed during booms. Second, we investigate several additional patterns on the composition of R&D. We find that the procyclicality of R&D is concentrated among firms that are more financially constrained, and that time allocated towards basic science (applied) research is countercyclical (procyclical). These results highlight the importance of composition effects among not only the organizations that contribute to innovation over the business cycle, but also the tasks that employees within these organizations perform.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
