Public R&D Investment in Economic Crises

Abstract

We study the cyclicality of public R&D in 28 OECD countries (1995 – 2017). While procyclical on average, public R&D reacts asymmetrically over different phases of the business cycle and becomes a cyclical during recessions. It is also heterogeneous across countries: Innovation leaders and followers behave countercyclically during recessions while moderate innovators behave pro cyclically. Furthermore, the share of public R&D allocated to the business sector is countercyclical, but the thematic composition remains stable. These results, not driven by countries’ financial constraints, imply that countries behind the innovation frontier might strengthen their resilience to economic crises by adopting countercyclical R&D strategies.

Keywords: R&D, Public Policy, Business Cycle

JEL Classification: O38, H50, H12, E32