Public Investment in R&D in Reaction to Economic Crises - A Longitudinal Study for OECD Countries

38 Pages Posted: 12 Feb 2018

See all articles by Maikel Pellens

Maikel Pellens

Ghent University; MSI, Faculty of Business and Economics, KULeuven; Centre for European Economic Research

Bettina Peters

Center for European Economic Research (ZEW)

Martin Hud

ZEW – Leibniz Centre for European Economic Research

Christian Rammer

ZEW – Leibniz Centre for European Economic Research - Industrial Economics and International Management Research

Georg Licht

Center for European Economic Research (ZEW)

Date Written: 2018

Abstract

The paper investigates the reaction of public R&D spending on economic crises. We are interested in two counteracting motives: On the one hand, public R&D spending can be seen as a means to fight the crisis, and governments may decide to increase their R&D budgets. On the other hand, a crisis reduces public income and urges governments to cut spending, which may negatively affect public R&D budgets. Using panel data from 26 OECD countries over the period 1995 to 2015, we investigate how public R&D expenditure changes over the business cycle for different types of government R&D expenditure. On average, we find evidence for a strong pro-cyclical effect on public R&D investments. But country heterogeneity matters. Whereas European innovation leaders and non-EU countries pursue a counter-cyclical strategy, innovation followers and moderate innovators behave pro-cyclical. This leads to an increasing innovation gap in Europe. Short-run and long-run financing conditions (budget surplus and government debt levels) also significantly affect public R&D spending. However, there is no evidence that economic crises systematically affect the composition of public R&D spending along different thematic areas or by beneficiaries.

Keywords: Public R&D expenditure, economic crisis, OECD, panel data

JEL Classification: H54, H12, H61

Suggested Citation

Pellens, Maikel and Peters, Bettina and Hud, Martin and Rammer, Christian and Licht, Georg, Public Investment in R&D in Reaction to Economic Crises - A Longitudinal Study for OECD Countries (2018). ZEW - Centre for European Economic Research Discussion Paper No. 18-005, Available at SSRN: https://ssrn.com/abstract=3122254 or http://dx.doi.org/10.2139/ssrn.3122254

Maikel Pellens (Contact Author)

Ghent University ( email )

Ghent, 9000
Belgium

MSI, Faculty of Business and Economics, KULeuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for European Economic Research

Mannheim
Germany

Bettina Peters

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
+496211235174 (Phone)
+496211235170 (Fax)

HOME PAGE: http://www.zew.de

Martin Hud

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Christian Rammer

ZEW – Leibniz Centre for European Economic Research - Industrial Economics and International Management Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Georg Licht

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

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