THE IMPACT OF EXCHANGE-RATE CHANGES ON INVESTMENT IN RESEARCH-AND-DEVELOPMENT

Panel data on 360 U.S. manufacturing firms over the years 1975 to 1987 are used to identify the response of RED spending to exchange rate changes. Only firms in industries with average RED spending of at least 3 percent of sales revenue react to an exchange rate appreciation with increased RED spending. Firms in industries with lower levels of RED intensity do not. This finding can be interpreted to mean that only RED intensive firms react to an increase in competitive pressure with more RED effort.