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Does an oil boom promote firms’ R&D expenditure? Evidence from Ecuador

Abstract:

Purpose: The purpose of this paper is to examine how the expansionary phase of a business cycle driven by an exogenous commodity price shock (oil) affects R&D expenditures among Ecuadorian firms. Design/methodology/approach: Using two rounds of the Ecuadorian National Science, Technology and Innovation Activities Survey (ACTI 2012 and 2015) and a data set on gross value added (GVA) by industry, we run a sample correction model applied to a panel data of 1,023 firms from 2009 to 2014. Findings: In deciding whether to invest in R&D, the higher an industry’s GVA, the lower the pbkp_redicted probability that firms in that industry would invest. Additionally, R&D investments are not procyclical, and there is marginal evidence that they might actually be countercyclical. These findings are consistent with Schumpeter (1939) and Ouyang (2011) and are likely due to an increased opportunity cost of R&D investment during the oil boom. Originality/value: In this study, we examine a boom period and not a full business cycle. This boom is driven by an exogenous shock, deviating from much of the current literature, which focuses on endogenously driven business cycles. This paper examines how the oil shock impacted a variety of industries, and not just attractive ones. Additionally, this paper adds to the limited literature around R&D and business cycles in Latin America.