5/2011 Kadri Männasoo, Jaanika Meriküll. R&D, demand fluctuations and credit constraints: comparative evidence from Europe

Working Papers of Eesti Pank. No. 5/2011

This paper contributes to the literature by investigating whether the cyclicality of R&D differs across countries with different levels of development. The paper uses micro-data from the World Bank/EBRD Business Environment and Enterprise Performance survey from 2001- 2007 and estimates bivariate probit model of firms' R&D conditioned on credit constraints. The main results are: (1) The likelihood of a firm conducting R&D increases with sales growth and decreases with credit constraints. (2) R&D by firms is counter-cyclical to exogenous industry output and a negative industry demand shock has a stronger countercyclical effect on R&D than a positive industry demand shock does. (3) R&D is more counter-cyclical to demand shocks the further the country is from the technological frontier.
JEL Code: G31, E32, O30, O52
Key words: R&D cyclicality, demand fluctuations, credit constraints, comparative study

** Kadri Männasoo is a senior researcher at Tallinn University of Technology and a visitor researcher at Eesti Pank. Jaanika Meriküll is a researcher at Eesti Pank. The research was supported by Estonian Science Foundation grant project ETF8796. The authors thank Dmitri Kulikov, Martti Randveer, Karsten Staehr and participants in Eesti Pank seminars for their valuable comments. All remaining errors are the author's own.

Authors' e-mail addresses: kadri.mannasoo [at] eestipank.ee, jaanika.merikyll [at] eestipank.ee

The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank.


1. Introduction
2. Background
3. Methodology
4. Data
5. Results
5.1. The cyclicality of R&D in emerging markets
5.2. The cyclicality of R&D in mature markets
6. Robustness study: cyclicality of R&D at the industry level
7. Conclusions

R&D, demand fluctuations and credit constraints: comparative evidence from Europe, Working Papers of Eesti Pank No 5/2011 (PDF)