  The Hicks induced innovation hypothesis states that a price increase of a
production factor is a spur to invention. We propose an alternative hypothesis
restating that a spur to invention require not only an increase of one factor
but also a decrease of at least one other factor to offset the companies' cost.
We illustrate the need for our alternative hypothesis in a historical example
of the industrial revolution in the United Kingdom. Furthermore, we
econometrically evaluate both hypotheses in a case study of research and
development (R&D) in 29 OECD countries from 2003 to 2017. Specifically, we
investigate dependence of investments to R&D on economic environment
represented by average wages and oil prices using panel regression. We find
that our alternative hypothesis is supported for R&D funded and/or performed by
business enterprises while the original Hicks hypothesis holds for R&D funded
by the government and R&D performed by universities. Our results reflect that
business sector is significantly influenced by market conditions, unlike the
government and higher education sectors.
