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Credit and Product Innovation in Emerging Markets: Evidence from India

Author

Listed:
  • George, Siddharth Eapen
  • Kirti, Divya
  • Lange, Nils
  • Martínez Pería, Maria Soledad
  • Vijayaraghavan, Rajesh

Abstract

We study how access to bank financing affects product innovation in a developing country context by analyzing a reform that broadened credit eligibility for many small Indian manufacturing firms. Newly eligible firms borrow more but, on average, do not introduce new or more complex products or expand product scope. Many firms appear to operate below efficient scale and use credit to expand existing product lines rather than innovate. Moreover, most firms face several additional barriers that weaken the impact of credit on innovation. Among firms that do not face these additional barriers, credit access boosts innovation, as in advanced economies.

Suggested Citation

  • George, Siddharth Eapen & Kirti, Divya & Lange, Nils & Martínez Pería, Maria Soledad & Vijayaraghavan, Rajesh, 2025. "Credit and Product Innovation in Emerging Markets: Evidence from India," CEPR Discussion Papers 20744, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20744
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    File URL: https://cepr.org/publications/DP20744
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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