When Credit Bites: Financing Constraints and the Innovation–Export Link

This paper explores the interplay between firms' credit constraints, innovation, and export decisions. Using survey data for Italian manufacturing firms, we document strong complementarity between the two activities: innovation raises export participation, while exporting stimulates R&D. Credit rationing significantly reduces both the probability and intensity of exporting and innovation, but its effects are heterogeneous. The negative impact of credit rationing on export participation is substantially attenuated by innovation, whereas exporting provides only limited protection against the effects of financing constraints on innovation. We interpret these findings through a stylized theoretical framework in which exporting and innovation are mutually reinforcing but operate through distinct channels: innovation directly enhances export profitability through cost reductions, whereas exporting stimulates innovation only indirectly by expanding market opportunities. Overall, our findings suggest that policies fostering innovation may generate a double dividend by promoting technological upgrading while simultaneously strengthening firms' ability to sustain export activity under financial constraints.