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Do Credit Constrained Firms in Africa Innovate Less? A Study Based on Nine African Nations

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  • Edward Lorenz

    (University of Nice Sophia Antipolis, France
    GREDEG CNRS)

Abstract

This paper draws on the results of World Bank Enterprise surveys to investigate the relation between financials constraints and innovation performance for a sample of firms in 9 African nations: Ethiopia, Zimbabwe, Rwanda, the Central African Republic, Uganda, Zambia, Tanzania, Ghana and the Democratic Republic of Congo. In common with much of the recent literature focusing on these issues, the analysis makes use of direct measures of innovation and of financial constraints. The econometric analysis takes into account the potential endogeneity of financing constraints to the firm’s decision to innovate. The results show that financing constraints have a negative impact on the probability of successful innovation and that this negative impact tends to be greater both for small-sized firms compared to large firms and for young firms compared to old firm. The results have important policy implications and strongly suggest that government subsidies and financial support programs for micro and small-sized firms could make a positive contribution to increasing the innovation performance of African nations.

Suggested Citation

  • Edward Lorenz, 2014. "Do Credit Constrained Firms in Africa Innovate Less? A Study Based on Nine African Nations," GREDEG Working Papers 2014-29, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    • Handle: RePEc:gre:wpaper:2014-29
    as

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    File URL: http://195.220.190.85/GREDEG-WP-2014-29.pdf
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    References listed on IDEAS

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    3. 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.
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    5. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Misraku Molla Ayalew & Zhang Xianzhi & Yidersal Dagnaw Dinberu & Demis Hailegebreal Hailu, 2020. "The Determinants of Firm’s Innovation in Africa," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 527-567, September.
    2. Emmanuel Pinto Moreira & Rishita Mehra, 2022. "Innovation in Africa: Evidence and Implications for Growth and the Transition to High-Income Status," Research papers & Policy papers 1950, Policy Center for the New South.

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    More about this item

    Keywords

    Contextual Credit constraints; Innovation; Small and Medium-sized Enterprises; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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