Fact of the Week: Industries That Depend on External Financing Suffer 9.3 Percent Deeper Drops in Their Patenting Rates Than Other Industries do After a Banking Crisis

Source: Bryan Hardy and Can Sever, “Financial Crises and Innovation,” Bank for International Settlements Working Paper No 846, March 2020.

Commentary: In the wake of economic downturns, companies are forced to cut costs, often turning to R&D activities, which have a low impact on short-term revenue. A new study has isolated one of the mechanisms through which this takes place by examining patenting in the years after different kinds of economic crises. It finds that industries that are highly reliant on external financing see their patenting rates fall by 9.3 percent more than industries that aren’t in the four years following a banking crisis, an effect not apparent in other types of economic crises.