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Firm Productivity, Innovation, and Financial Development

Author

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  • Era Dabla-Norris
  • Erasmus K. Kersting
  • Geneviève Verdier

Abstract

How do firm‐specific actions—in particular, innovation—affect firm productivity? What is the role of the financial sector in facilitating higher productivity? Using a rich firm‐level data set, we find that innovation is crucial for firm performance as it directly and measurably increases productivity. The impact of innovation on productivity is larger in less‐developed countries. Evidence of financial sector development influencing the innovation‐productivity link is weak, but the effect is difficult to identify due to correlation between indicators of a country's financial and nonfinancial development. Furthermore, we find evidence that the innovation effect on productivity is more significant for high‐tech firms than for low‐tech firms.

Suggested Citation

  • Era Dabla-Norris & Erasmus K. Kersting & Geneviève Verdier, 2012. "Firm Productivity, Innovation, and Financial Development," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 422-449, October.
    • Handle: RePEc:wly:soecon:v:79:y:2012:i:2:p:422-449
    DOI: 10.4284/0038-4038-2011.201
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