Constraints on Innovation Finance in North Jutland, Denmark

The paper contributes to an understanding of the nature of financial constraints in a less developed region in Denmark, North Jutland. While based on a general discussion of characteristics of particularly constrained firms, the paper focuses more specifically and empirically on firms' perception of whether there is a financing gap with regard to innovation financing in the region and whether this situation has changed over time. Specifically, the extent to which firms point to financial constraints on their innovation projects and what type of firm sees financing as a constraint. The paper uses a longitudinal study of how a panel of more than 400 firms report financial constraints in six successive surveys. The paper also contributes with a closer linking of innovation and potential financial constraints. The results show that, while lack of external finance is an obstacle to innovation in a relatively small share of firms, the situation worsened in 2002--2004. Financing of innovation is increasingly seen as relatively important and an actual obstacle to innovation. Contrary to expectations, small and/or innovative firms did not differ much in their assessment of financial constraints before 2002. However, size seemed to matter in 2002--2004. Innovative firms were more financially constrained in 2003--2004. Our results indicate both a change in the degree to which financial constraints is a hindrance to innovation and also a change in the specific type of firm with the most severe financing constraint. Therefore one policy implication is that a range of different instruments may be needed if all firms should be targeted with an offer to support innovation activities. Additionally, a prerequisite for policy-makers to react to such changes is a close monitoring of the market development for which an extensive and frequent survey is an important instrument.