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Financial constraints and innovation: Why poor countries don't catchup

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  • Gorodnichenko, Yuriy
  • Schnitzer, Monika

Abstract

We examine micro-level channels of how financial development can affect macroeconomic outcomes like the level of income and export intensity. We investigate theoretically and empirically how financial constraints affect a firm's innovation and export activities, using unique firm survey data which provides direct measures for innovations and firm-specific financial constraints. We find that financial constraints restraint heability of domestically owned firms to innovate and export and hence to catch up to the technological frontiers. This negative effect is amplified as financial constraints force export and innovation activities to become substitutes although they are generally natural complements.

Suggested Citation

  • Gorodnichenko, Yuriy & Schnitzer, Monika, 2010. "Financial constraints and innovation: Why poor countries don't catchup," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 341, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:341
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    More about this item

    Keywords

    innovation; productivity; financial constraint; export; technology frontier; BEEPS;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • F1 - International Economics - - Trade
    • G3 - Financial Economics - - Corporate Finance and Governance

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