EXPRESS: National Culture and the Cyclical Behavior of R&D Expenditure

Abstract

This article examines the cyclical behavior of business (firm-financed) R&D expenditure at the national level, using a panel of 64 countries spanning about 4 decades. R&D is considerably more volatile than GDP and tends to be procyclical. We adopt the Hofstede framework to investigate systematically cross-national heterogeneity in comovement and volatility of R&D. Similar to prior studies, a higher R&D intensity (R&D expenditure / GDP) is associated with more uncertainty accepting, long-term oriented, and indulgent countries. Notably, R&D behaves less procyclically in more uncertainty accepting, individualistic, long-term oriented, and indulgent countries, and it is less volatile in more masculine, individualistic, long-term oriented, and indulgent countries. That is, a culture with a higher propensity to invest in R&D tends to follow business cycles less closely (i.e., lower comovement) and have more persistent spending over time (i.e., lower volatility). Furthermore, higher comovement or volatility of R&D indeed harms national productivity and innovativeness. Therefore, this research broadens our understanding of the role national culture plays by demonstrating (1) that it affects considerably the cyclical behavior of R&D and (2) that this cyclical behavior is another conduit through which culture influences economic performance.