Modeling the Reciprocal and Longitudinal Effect of Return on Sales and R&D Intensity During Economic Cycles

Abstract

Given that both the U.S. and EU have lost some of their edge in manufacturing to emerging Asian countries, the profitability and competitiveness of U.S. and EU firms depend more and more on innovation-based businesses. For example, while the steel industry lost 300,000 jobs in the USA between 1980 and 2000, four companies Microsoft, Oracle, Cisco and Dell, who did not have a single employee in 1980, had 200,000 highly paid employees by 2005. The switch to innovation-based businesses has been going on for nearly thirty years in the USA. In these companies, the role of RD this is the focus of this study both across all industries, as well as between selected industries with diverse RD the effect is not consistent across the two cycles studied. This exploratory study's findings lead us to conclude that RD the same is true for public policy addressing company/industry needs during economic cycles - fit the policy to each cycle. We consider this to be an exploratory study that opens a new avenue for more deeper investigation into the known relationship between profitability and R&D spending during the ups and downs of economic cycles at the level of the economy, selected industries, and individual corporations (for responding with appropriate corporate strategy during economic swings).