Financial constraints and innovation: Why poor countries don't catch up

Abstract

This paper examines micro-level channels of how financial development can affect macroeconomic outcomes like the level of income and export intensity. We investigate theoretically and empirically how financial constraints affect a firm's innovation and export activities, using unique firm survey data which provides direct measures for innovations and firm-specific financial constraints. We find that financial constraints restrain the ability of domestically owned firms to innovate and export and hence to catch up to the technological frontiers. This negative effect is amplified as financial constraints complements.

Exploring Firm-Level Innovation and Productivity in Developing Countries: The Perspective of Caribbean Small States

“…There were just over 5 percent of firms that fit this description. As illustrated in the tables, there was strong evidence that innovation and access to financing were negatively related, which is consistent with earlier work (Hall, 2010;Gorodnichenko and Schnitzer, 2013;Alvarez and Crespi, 2015). In particular, firms that were credit constrained were significantly less likely to innovate with magnitudes larger for process innovation than product innovation.…”

On firms’ product space evolution: the role of firm and local product relatedness

“…Foreign-owned firms, then, besides being more export and import intensive, may further benefit from technological spillovers from their headquarters and from the availability of intra-group financial resources (Desai et al, 2004(Desai et al, , 2008. The latter may offset the negative impact of financial constraints that usually affect firms operating in less-developed economies (Gorodnichenko and Schnitzer, 2010). Besides this set of firm-level controls, we included a dummy variable for multi-plant firms to address any possible externality stemming from their simultaneous presence in different locations.…”

Innovation strategies and employment in Latin American firms

“…Many studies agree that product innovations 7 An alternative reason for the existence of substitution between make and buy strategies could be due to the existence of market failures. Although there might be obvious complementarities between both strategies, the existence of indivisibilities and lack of finance might induce the firm to choose just one of them (although the optimum strategy in a world without market failures could be to carry out both) (Gorodnichenko and Schnitzer, 2010). have a positive impact on employment since they can lead to the birth of entirely new branches of economic activity in which additional jobs are created.…”