Uncertainty and the Dynamics of R&D

This paper shows that higher uncertainty reduces the responsiveness of R&D to changes in business conditions, making it more persistent over time. Thus, uncertainty plays a critical role in shaping the dynamics of R&D through the business cycle, and its response to technology policy. The authors also show that if firms are increasing their level of R&D then the effect of uncertainty will be negative, while if firms are reducing R&D then the effect of uncertainty will be positive.