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Firm Productivity, innovation and Financial Development

Author

Listed:
  • Ms. Genevieve Verdier
  • Erasmus Kersting
  • Ms. Era Dabla-Norris

Abstract

How do firm-specific actions-in particular, innovation-affect firm productivity? And what is the role of the financial sector in facilitating higher productivity? Using a rich firm-level dataset, we find that innovation is crucial for firm performance as it directly and measurably increases productivity. Moreover, its effects on productivity are mediated through the financial sector; firms reap the maximum benefits from innovation in countries with well-developed financial sectors. This effect is particularly important for firms in high-tech sectors, which typically have higher external financing needs.

Suggested Citation

  • Ms. Genevieve Verdier & Erasmus Kersting & Ms. Era Dabla-Norris, 2010. "Firm Productivity, innovation and Financial Development," IMF Working Papers 2010/049, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/049
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