National Culture and the Cyclical Behavior of Research-and-Development Expenditure

Abstract

This article examines the cyclical behavior of business (firm-financed) research-and-development (R&D) expenditure at the national level, using a panel of 64 countries spanning four decades. R&D is considerably more volatile than gross domestic product and tends to be procyclical. The author adopts the Hofstede framework to systematically investigate cross-national heterogeneity in comovement and volatility of R&D. Similar to prior studies, a higher R&D intensity (R&D expenditure/gross domestic product) is associated with countries that are more accepting of uncertainty, long-term oriented, and indulgent. Notably, R&D behaves less procyclically in countries that are more accepting of uncertainty, individualistic, long-term oriented, and indulgent, and it is less volatile in countries that are more masculine, individualistic, long-term oriented, and indulgent. 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 the understanding of the role national culture plays by demonstrating that (1) it considerably affects the cyclical behavior of R&D and (2) this cyclical behavior is another conduit through which culture influences economic performance.