Study On The Relationship Between R&D Expenditure And Business Cycle

R&D expenditure moves with business cycle thereby exhibit cyclical characteristics and respond asymmetrically to business cycle, which has significant impact to R&D intensity, more importantly, to the economic growth impetus in the long-run. At present, the focus of innovation research moves to the relationship and mechanism between financial factors and R&D expenditure. In the real economy, financial market is imperfect, the existence of information asymmetry, transaction cost and agency cost making financial factors being the important issue which influence entrepreneur’s decision of R&D expenditure, This paper study the relationship between R&D expenditure and business cycle from the aspect of financing constraints and financial development.In the theoretical analysis, this paper introduces financing constraints into the two period overlapping model to analyze the mechanism between business cycle and R&D expenditure and points out: economic agent take financing constraints into consideration when making decisions. R&D expenditure moves pro-cyclically when financing constraints is tight enough to offset opportunity effect. The tighter the financing constraints is, the lower the level of R&D expenditure and the more obvious signs of its pro-cyclical characteristics. R&D intensity measure the share of R&D expenditure in gross domestic production, which is the key indicator of R&D expenditure level and independent innovation capability. Therefore, based on previous analysis the author discusses cyclical characteristics of R&D intensity and the total effect of business cycle has on R&D intensity, finally analyze the impact of financial development on the characteristics of R&D intensity based on the functional view, and find that continuous economic fluctuation has negative effect on R&D intensity when financing constraints is tight enough, but financial development can reduce this negative effect.In the empirical study, based on the panel data for 29 developed countries, 26 developing countries and 30 provinces & cities of china, this paper find that financing constraints in each country is tight enough to offset opportunity cost effects, making R&D expenditure moves pro-cyclically. R&D expenditure of developing countries show more obvious sign of pro-cyclical characteristics. Then the author introduces two business cycle indicators into econometric model to investigate the cyclical characteristic of R&D intensity and its response to different period of business cycle.Investigation into each period of business cycle, this paper find that R&D intensity of developed country show growth cycle characteristics, while R&D intensity of developing countries move counter-cyclically and has stronger response to expansion than to recession, which in turn lead to negative effect of continuing economic fluctuation on R&D intensity, this is due to the tight financing constraints faced by economic agents. This paper also find that, the cyclical characteristics of R&D intensity differ sharply in each country with different R&D expenditure level. At last, investigation into the reality of China in its transition period, this paper find that R&D intensity moves counter-cyclically and its negative response to expansion is greater than its positive response to recession, continuous economic fluctuation has negative effect on R&D intensity, which is stronger in western area of China. Investigation into different R&D investor, this paper find that the negative effect of economic fluctuation on R&D intensity stem from its negative impact on R&D intensity of large and medium-sized industrial enterprises.Because of poorly developed financial system, economic agents face tighter financing constraints, which make R&D expenditure of China rise less in the period of economic expansion than developed countries, and lead to the result that economic fluctuations has negative effect on R&D intensity of China, which is grearter than in other developing countries. Given this, the author exam the impact of financial development on cyclical characteristics of R&D intensity of China from the aspect of financial size, structure, efficiency and find that financial development could lower the negative response of R&D intensity to expansion, improve its positive response to recession, reduce the negative effect of continuous economic fluctuation has on R&D intensity of China, among which, adjustment of financial structure is most beneficial to reduce the negative effects. Due to the imbalance of regional financial development in our country, financial development in the western area has relatively limited impact to reduce the negative effects.Based on previous discussion, this paper puts forward some suggestions: science and technology policy should be formed according to the phase of business cycle in each region. In order to improve R&D intensity, the moderate fiscal policy and monetary policy should be implemented to reduce economic fluctuations and promote long-term stable economic growth. Promote financial structure optimization and regional financial balance, control financial size with reasonable range and optimize regional distribution of financial resources, implement differentiated financial development strategy and promote development of direct financing.