IDEAS home Printed from https://ideas.repec.org/a/kap/sbusec/v61y2023i1d10.1007_s11187-022-00685-8.html
   My bibliography  Save this article

Global value chains, financial constraints, and innovation

Author

Listed:
  • Rawan Elshaarawy

    (Egyptian Competition Authority)

  • Riham A. Ezzat

    (Cairo University)

Abstract

This paper analyzes the effect of firms engaging in global value chains (GVCs) and suffering from financial constraints on innovation. To explore this relationship, this study relies on firm-level data from World Bank Enterprise Surveys (WBES) for 146 countries during the period between 2006 and 2020. The aim of this paper is to empirically link two literature strands, the one of GVC participation and that of financial constraints, and to examine their individual effects, in addition to the effect of their interaction on innovation. Extended probit model is used to account for the endogeneity problem that may arise when studying the effect of GVC participation and financial constraints on innovation, by using a set of instrumental variables. This paper controls for heterogeneity among firms (by country, region, and industry), firms’ characteristics, reverse causality, and sample selection. The results of this paper show that financial constraints impede firms’ probability of innovation even if the firm is participating in GVC. This means that the negative effects of financial constraints outweigh the positive effects of GVC participation on innovation.

Suggested Citation

  • Rawan Elshaarawy & Riham A. Ezzat, 2023. "Global value chains, financial constraints, and innovation," Small Business Economics, Springer, vol. 61(1), pages 223-257, June.
    • Handle: RePEc:kap:sbusec:v:61:y:2023:i:1:d:10.1007_s11187-022-00685-8
    DOI: 10.1007/s11187-022-00685-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11187-022-00685-8
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11187-022-00685-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Holmstrom, Bengt, 1989. "Agency costs and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 305-327, December.
    2. Ramana Nanda & William R. Kerr, 2015. "Financing Innovation," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 445-462, December.
    3. Boldrin, Michele & Levine, David K., 2008. "Perfectly competitive innovation," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 435-453, April.
    4. Pol Antràs, 2019. "Conceptual Aspects of Global Value Chains," NBER Working Papers 26539, National Bureau of Economic Research, Inc.
    5. de Haas, Ralph & Lu, Liping & Ongena, S.R.G., 2018. "Clear and Close Competitors? : On the Causes and Consequences of Bilateral Competition between Banks," Other publications TiSEM e9f86045-13c5-49d9-85df-1, Tilburg University, School of Economics and Management.
    6. Pietrobelli, Carlo & Rabellotti, Roberta, 2011. "Global Value Chains Meet Innovation Systems: Are There Learning Opportunities for Developing Countries?," World Development, Elsevier, vol. 39(7), pages 1261-1269, July.
    7. Ibrahim Mike Okumu & Edward Bbaale & Madina Mwagale Guloba, 2019. "Innovation and employment growth: evidence from manufacturing firms in Africa," Journal of Innovation and Entrepreneurship, Springer, vol. 8(1), pages 1-27, December.
    8. Yuriy Gorodnichenko & Monika Schnitzer, 2013. "Financial Constraints And Innovation: Why Poor Countries Don'T Catch Up," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1115-1152, October.
    9. Fernandez, Viviana, 2017. "The finance of innovation in Latin America," International Review of Financial Analysis, Elsevier, vol. 53(C), pages 37-47.
    10. Gary Gereffi, 2014. "Global value chains in a post-Washington Consensus world," Review of International Political Economy, Taylor & Francis Journals, vol. 21(1), pages 9-37, February.
    11. Giuliani, Elisa & Pietrobelli, Carlo & Rabellotti, Roberta, 2005. "Upgrading in Global Value Chains: Lessons from Latin American Clusters," World Development, Elsevier, vol. 33(4), pages 549-573, April.
    12. Holmström, Bengt, 1989. "Agency Costs and Innovation," Working Paper Series 214, Research Institute of Industrial Economics.
    13. Johannes Van Biesebroeck, 2014. "Productivity, Exporting and Financial Constraints of Chinese SMEs," IDB Publications (Working Papers) 85355, Inter-American Development Bank.
    14. James R. Brown & Steven M. Fazzari & Bruce C. Petersen, 2009. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom," Journal of Finance, American Finance Association, vol. 64(1), pages 151-185, February.
    15. repec:zbw:bofrdp:urn:nbn:fi:bof-201512141480 is not listed on IDEAS
    16. Mohnen, Pierre & Roller, Lars-Hendrik, 2005. "Complementarities in innovation policy," European Economic Review, Elsevier, vol. 49(6), pages 1431-1450, August.
    17. Teresa C Fort & John Haltiwanger & Ron S Jarmin & Javier Miranda, 2013. "How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 520-559, August.
    18. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2012. "Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001-1024, October.
    19. De Marchi, Valentina & Giuliani, Elisa & Rabellotti, Roberta, 2015. "Local innovation and global value chains in developing countries," MERIT Working Papers 2015-022, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    20. Misraku Molla Ayalew & Zhang Xianzhi, 2019. "The effect of financial constraints on innovation in developing countries," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 28(3), pages 273-308, October.
    21. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
    22. Christian Henn & Chris Papageorgiou & Jose Manuel Romero & Nikola Spatafora, 2020. "Export Quality in Advanced and Developing Economies: Evidence from a New Data Set," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 421-451, June.
    23. Emanuele Brancati & Raffaele Brancati & Andrea Maresca, 2017. "Global value chains, innovation and performance: firm-level evidence from the Great Recession," Journal of Economic Geography, Oxford University Press, vol. 17(5), pages 1039-1073.
    24. Kuntchev, Veselin & Ramalho, Rita & Rodriguez-Meza, Jorge & Yang, Judy S., 2013. "What have we learned from the enterprise surveys regarding access to credit by SMEs ?," Policy Research Working Paper Series 6670, The World Bank.
    25. Ketan Reddy & Radeef Chundakkadan & Subash Sasidharan, 2021. "Firm innovation and global value chain participation," Small Business Economics, Springer, vol. 57(4), pages 1995-2015, December.
    26. Frederique Savignac, 2008. "Impact Of Financial Constraints On Innovation: What Can Be Learned From A Direct Measure?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(6), pages 553-569.
    27. Dirk Czarnitzki & Hanna Hottenrott, 2011. "R&D investment and financing constraints of small and medium-sized firms," Small Business Economics, Springer, vol. 36(1), pages 65-83, January.
    28. Hans Loof & Almas Heshmati, 2006. "On the relationship between innovation and performance: A sensitivity analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 317-344.
    29. Arne Fevolden & Terje Grønning, 2010. "Combining Innovation and Capacity Utilization in High Throughput Systems: Moving Beyond the Product Life Cycle Model by Introducing Second-Order Innovations," Industry and Innovation, Taylor & Francis Journals, vol. 17(6), pages 609-628.
    30. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    31. repec:zbw:bofrdp:2015_028 is not listed on IDEAS
    32. repec:cup:jfinqa:v:46:y:2011:i:06:p:1545-1580_00 is not listed on IDEAS
    33. John Humphrey & Hubert Schmitz, 2002. "How does insertion in global value chains affect upgrading in industrial clusters?," Regional Studies, Taylor & Francis Journals, vol. 36(9), pages 1017-1027.
    34. Lucia Tajoli & Giulia Felice, 2018. "Global Value Chains Participation and Knowledge Spillovers in Developed and Developing Countries: An Empirical Investigation," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(3), pages 505-532, July.
    35. Yiping Huang, 2016. "Can China escape the middle-income trap?," China Economic Journal, Taylor & Francis Journals, vol. 9(1), pages 17-33, January.
    36. Nola Hewitt-Dundas, 2006. "Resource and Capability Constraints to Innovation in Small and Large Plants," Small Business Economics, Springer, vol. 26(3), pages 257-277, April.
    37. Aghion, P. & Askenazy, P. & Berman, N. & Cette, G. & Eymard, L., 2008. "Credit Constraints and the Cyclicality of R&D Investment: Evidence from France," Working papers 198, Banque de France.
    38. Pierluigi Montalbano & Silvia Nenci & Carlo Pietrobelli, 2018. "Opening and linking up: firms, GVCs, and productivity in Latin America," Small Business Economics, Springer, vol. 50(4), pages 917-935, April.
    39. Ayyagari, Meghana & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2011. "Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(6), pages 1545-1580, December.
    40. Gereffi, Gary, 1999. "International trade and industrial upgrading in the apparel commodity chain," Journal of International Economics, Elsevier, vol. 48(1), pages 37-70, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Du, Wenjing & Fang, Guanfu & Gao, Tiantian & Jiang, Wei, 2023. "Public credit institutions, export activities, and global value chain participation: Evidence from China's credit demonstration city construction program," Economic Modelling, Elsevier, vol. 126(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Georgios Efthyvoulou & Priit Vahter, 2016. "Financial Constraints, Innovation Performance and Sectoral Disaggregation," Manchester School, University of Manchester, vol. 84(2), pages 125-158, March.
    2. Bechlioulis, Alexandros & Economidou, Claire & Karamanis, Dimitrios & Konstantios, Dimitrios, 2023. "How important are capital controls in shaping innovation activity?," Journal of International Money and Finance, Elsevier, vol. 131(C).
    3. Hanna Hottenrott & Bettina Peters, 2012. "Innovative Capability and Financing Constraints for Innovation: More Money, More Innovation?," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1126-1142, November.
    4. Nenci, Silvia & Fusacchia, Ilaria & Giunta, Anna & Montalbano, Pierluigi & Pietrobelli, Carlo, 2022. "Mapping global value chain participation and positioning in agriculture and food: stylised facts, empirical evidence and critical issues," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 11(2), July.
    5. Vicente Salas-Fumás & Javier Ortiz, 2019. "Innovations’ Success and Failure in the Business Cycle," Sustainability, MDPI, vol. 11(15), pages 1-22, August.
    6. Hsu, Po-Hsuan & Taylor, Mark P. & Wang, Zigan & Xu, Qi, 2022. "Currency volatility and global technological innovation," Journal of International Economics, Elsevier, vol. 137(C).
    7. Upalat Korwatanasakul & Tran Thi Hue, 2022. "Global Value Chain Participation and Labour Productivity in Manufacturing Firms in Viet Nam: Firm-Level Panel Analysis," Working Papers DP-2022-34, Economic Research Institute for ASEAN and East Asia (ERIA).
    8. Alessandro Sterlacchini & Francesco Venturini, 2019. "R&D tax incentives in EU countries: does the impact vary with firm size?," Small Business Economics, Springer, vol. 53(3), pages 687-708, October.
    9. Hasan, Iftekhar & (Stan) Hoi, Chun-Keung & Wu, Qiang & Zhang, Hao, 2020. "Is social capital associated with corporate innovation? Evidence from publicly listed firms in the U.S," Journal of Corporate Finance, Elsevier, vol. 62(C).
    10. Junli Wang & Wendong Lv & Yao Zhao & Na Xu, 2022. "The Impact of Global Value Chain Embedding on Corporate Risk Taking of China’s A-Share Market-Listed Companies from 2000–2016," Sustainability, MDPI, vol. 14(20), pages 1-17, October.
    11. Shubin Yang & Chris Milner & Sandra Lancheros & Saileshsingh Gunessee, 2020. "Access to Finance, Technology Investments and Exporting Decisions of Indian Services Firms," Open Economies Review, Springer, vol. 31(5), pages 1009-1036, November.
    12. Jan Fagerberg & Bengt-Åke Lundvall & Martin Srholec, 2018. "Global Value Chains, National Innovation Systems and Economic Development," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(3), pages 533-556, July.
    13. Charlotte Keijser & Michiko Iizuka, 2018. "Looking Beyond Global Value Chains in Capacity Development: The Case of the IT-Enabled Service (ITES) Sector in South Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(3), pages 442-461, July.
    14. Delera, Michele & Pietrobelli, Carlo & Calza, Elisa & Lavopa, Alejandro, 2022. "Does value chain participation facilitate the adoption of Industry 4.0 technologies in developing countries?," World Development, Elsevier, vol. 152(C).
    15. V A Hajivassiliou & Frédérique Savignac & Frédérique Savignac, 2019. "Novel Approaches to Coherency Conditions in Dynamic LDV Models: Quantifying Financing Constraints and a Firm's Decision and Ability to Innovate," STICERD - Econometrics Paper Series 606, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    16. Ugur, Mehmet & Trushin, Eshref, 2018. "Asymmetric information and heterogeneous effects of R&D subsidies: evidence on R&D investment and employment of R&D personel," Greenwich Papers in Political Economy 21943, University of Greenwich, Greenwich Political Economy Research Centre.
    17. Ortiz, Rodrigo & Fernandez, Viviana, 2022. "Business perception of obstacles to innovate: Evidence from Chile with pseudo-panel data analysis," Research in International Business and Finance, Elsevier, vol. 59(C).
    18. Ketan Reddy & Radeef Chundakkadan & Subash Sasidharan, 2021. "Firm innovation and global value chain participation," Small Business Economics, Springer, vol. 57(4), pages 1995-2015, December.
    19. Prakash Singh & Dibyendu Maiti, 2019. "Sources of Finance, Innovation and Exportability in Asia: Cross-country Evidences," Journal of Asian Economic Integration, , vol. 1(1), pages 73-96, April.
    20. Hardy, Bryan & Sever, Can, 2021. "Financial crises and innovation," European Economic Review, Elsevier, vol. 138(C).

    More about this item

    Keywords

    Global value chain; Financial constraints; Innovation; Extended probit model;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:61:y:2023:i:1:d:10.1007_s11187-022-00685-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.