Investment, R&D and Financial Constraints in Britain and Germany

The study tests for the importance of cash flow on investment in fixed capital and research and development (R&D) using firm-level panel data in Great Britain and Germany. Results suggest that financial constraints are more significant in Britain, that they affect the decision to engage in R&D rather than the level of R&D spending by participants, and that consequently the British firms that do engage in R&D are a self-selected group where financing constraints tend to be less binding.