The effect of economic policy uncertainty on corporate R&D investment

Abstract

In this paper I study whether policy uncertainty has an effect on corporate research and development investment using the economic policy uncertainty index in relation to publicly listed companies in the US. The baseline results provide weak evidence that economic policy uncertainty has a positive effect on R&D investment, and that the effect is more pronounced for small firms. However, additional tests indicate that these results do not hold for alternative measures of economic uncertainty, suggesting that policy uncertainty does not have a statistically significant effect on R&D investment. Further subsample analysis provides weak evidence that policy uncertainty has a negative effect on the R&D investment of large firms in high-tech industries, suggesting similar characteristics for R&D as capital investments in these industries.