Lost Innovation

Abstract

I compare the citations of patents issued during recessions and those issued during normal times. Patents issued during recessions are cited less year-by-year and over the lifetime of the patent. Firm financial constraints during recessions are not major drivers of the decrease. Firm exits and M&A activities are associated with a decrease in self-citations, but an increase in patent citations from other firms. This observation suggests that technological progress disseminates through firm liquidations and M&A activities. To identify the effect of recessions on technological adoption, I exploit the unpredictable nature of business cycles and the rules governing patent issuance.

Keywords: patent, innovation, business cycle