Innovation and the Business Cycle: A Comparison of the U.S. Semiconductor and Automobile Industries

This paper examines data for U.S. automotive and semiconductor firms from 1976 to 2000 to analyze the cyclical nature of innovation, and to find if it is the same across the two industries. Although previous studies have used aggregate data, it does not follow that distinct industries respond to economic fluctuations in the same way. Using patenting as a proxy for innovation, this study finds that there is evidence that innovation is procyclical in the semiconductor industry, but there does not appear to be a similar cyclical pattern in the automobile industry. This has implications for government policy aimed at increasing private sector innovation, particularly at the regional level.