Doing R&D or Not (in a Crisis), That Is the Question …

Abstract

This study investigates how corporate R&D evolves in the light of the contemporary economic crisis. We study empirical evidence from past downturns, discuss the relevant literature and perform an empirical analysis of recent business survey data (collected during 2009). Pivotal for our considerations is the question whether companies tend to spend more or less on R&D and innovation activities during periods of recession. We empirically analyse what general patterns can be distinguished in this regard, given the particular circumstances of the most recent crisis. Our findings suggest that company behaviour varies: some companies have recently reduced their innovation activities significantly, while others maintained them and a third group even significantly increased their activities to reap the benefits in the expected upswing. Overall, we observe a deceleration of R&D and innovation activities induced by the crisis, but the trend figures remain positive. Driven by the companies that reinforce their R&D and innovation efforts to thrive through the downturn and thus seek to gather the benefits in the upswing to come, the R&D and innovation landscape is likely to look different in the aftermath of the crisis.

Acknowledgements

The authors are grateful to Fernando Hervás Soriano and Marina Ranga as well as to two anonymous referees for their helpful comments and suggestions received to improve the paper.

Notes

^‡Part of the work done in this paper was carried out while the authors were all staff at the European Commission-Joint Research Centre (JRC) Institute for Prospective Technological Studies (IPTS). The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

Opportunity costs in this regard refer to the missing out on foregone profits due to restructuring of the business.

Argument put forward by W. Gehrisch, Deputy Secretary General of the European Industrial Research Management Association, in Research Europe (11 December 2008).

For further details, see http://iri.jrc.ec.europa.eu/research/scoreboard.htm.

The EU annual survey on R&D Investment Business Trends is part of the Industrial Research Investment Monitoring initiative and accompanies the EU Industrial R&D Investment Scoreboard. The activity is jointly carried out by DG RTD-C and JRC-IPTS. The questionnaire is sent to the 1000 EU companies (appearing on the Scoreboard of the previous year) and to previous survey respondents. For details, see http://iri.jrc.ec.europa.eu/research/survey.htm.

For details, see Cincera et al. (2010a, 2010b).

The statistical tests reported in Tables A1 and A2 show that, in terms of R&D in 2007 and 2008, the average firm in the sample is larger than the average firm in the Scoreboard. In other words, larger firms in terms of their R&D investment volumes show a higher propensity to participate in the R&D Outlook survey.

The EU annual survey on R&D Investment Business Trends: see European Commission (2009b).

For the corresponding methodology, see Heckman (1979). See Cincera et al. (2010a, 2010b) for a more detailed discussion.

The results that are not reported here can be obtained upon request.

This survey was conducted at the end of 2009/beginning of 2010 (see the 2009 EU Survey on R&D investment business trends for more details).

See Cincera and Ravet (2010) for a more detailed discussion.

The econometric results are indeed not statistically significant at the 5 % statistical level. See Table 5, columns 4 and 5, in this regard.

For firms operating in the medium-low-tech sectors, the percentage cut in R&D budgets was also found to be quite high (but at comparably lower absolute volumes due to their lower propensity to invest in R&D).

Cincera and Veugelers (2010) showed that this gap was of 46% in 2007.

The European Commission (2010) recently has given a new stimulus to further unleash and develop R&D and innovation in order to reap their whole potential.