On the Timing of Innovation in Stochastic Schumpeterian Growth Models

50 Pages Posted: 22 Sep 2004 Last revised: 7 Nov 2022

See all articles by Gadi Barlevy

Gadi Barlevy

Federal Reserve Bank of Chicago; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

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Date Written: September 2004

Abstract

Recent work has revived the Schumpeterian hypothesis that recessions facilitate innovation and growth. But a major source of productivity growth, research and development, is actually procyclical. This paper argues that while it is optimal to concentrate growth-enhancing activities in downturns, dynamic spillovers inherent to the R&D process lead private agents to concentrate too much of their R&D activity in booms, precisely when its social cost is highest. Thus, while previous literature has argued recessions promote growth and intertemporal substitution is a desirable consequence of fluctuations, in the case of R&D recessions discourage growth and intertemporal substitution proves to be a social liability.

Suggested Citation

Barlevy, Gadi, On the Timing of Innovation in Stochastic Schumpeterian Growth Models (September 2004). NBER Working Paper No. w10741, Available at SSRN: https://ssrn.com/abstract=590729

Gadi Barlevy (Contact Author)

Federal Reserve Bank of Chicago ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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