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Financial Constraints: Routine Versus Cutting Edge R&D Investment
Author(s) -
Czarnitzki Dirk,
Hottenrott Hanna
Publication year - 2011
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2010.00285.x
Subject(s) - subsidy , investment (military) , economics , enhanced data rates for gsm evolution , distribution (mathematics) , econometrics , finance , monetary economics , mathematics , computer science , telecommunications , mathematical analysis , politics , political science , law , market economy
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.