Financial Constraints: Routine Versus Cutting Edge R&D Investment |
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| Authors: | Dirk Czarnitzki Hanna Hottenrott |
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| Institution: | 1. Department of Managerial Economics, Strategy and InnovationKatholieke Universiteit LeuvenNaamsestraat 693000 Leuven, BelgiumCentre for R&D Monitoring (ECOOM) at K.U.LeuvenLeuven, BelgiumCentre for European Economic Research (ZEW)Mannheim, Germanydirk.czarnitzki@econ.kuleuven.be;2. Department of Managerial Economics, Strategy and InnovationKatholieke Universiteit LeuvenNaamsestraat 693000 Leuven, BelgiumCentre for R&D Monitoring (ECOOM) at K.U.LeuvenLeuven, BelgiumCentre for European Economic Research (ZEW)Mannheim, Germanyhanna.hottenrott@econ.kuleuven.be |
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| Abstract: | We analyze financial constraints on R&D, where we account for heterogeneity among investments that has been neglected in previous literature. According to economic theory, investments should be distinguished by their degree of uncertainty, e.g. routine R&D versus cutting‐edge R&D. Financial constraints should be more binding for cutting‐edge R&D than for routine R&D. Using panel data we find that R&D spending of firms devoting a significant fraction of R&D to cutting‐edge projects is curtailed by credit constraints while routine R&D investments are not. This has important policy implications with respect to the distribution of R&D subsidies in the economy. |
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