Pro-cyclical R&D Puzzle: Technology Shocks and Pro-cyclical R&D Expenditure

The paper examines the cyclical property of R&D expenditure in the context of endogenous growth, and concludes that substitutability between investing in physical capital and investing in technology/knowledge is a key of the cyclical property of R&D; basically technology shocks accompany counter-cyclical R&D and demand shocks accompany pro-cyclical R&D; and the easiest way to solve the pro-cyclical R&D puzzle is to abandon the conjecture that business cycles are generated mainly by technology shocks.