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Financial systems, innovation and economic performance

  • Block Thorsten H.

    (MERIT)

Registered author(s):

    There is growing evidence of international divergence in the performance of newindustries. While the United States is at the forefront of the recent revolution ininformation technologies, European economists and policy makers are concerned thatEurope is falling behind with negative implications for long-term economicperformance. This paper investigates the role of financial systems as a crucialdeterminant of apparent differences in national abilities to promote innovativeactivities in specific sectors. Firstly, a short overview of the relevant finance andinnovation literature is provided, and a synthetic view of the finance-innovation linkis sketched. It is argued that national financial systems have an impact on thestructure of growth through their differing abilities to promote innovation in sector-specifictechnology regimes. Secondly, I apply a simple econometric model to a dataset consisting of 17 OECD countries and 20 manufacturing industries to identifyempirical patterns. The evidence suggests that sectors characterized by hightechnological opportunity and a focus on product innovation perform relatively betterin financial systems with large stock markets, competitive banking sectors and goodaccounting standards. In contrast, the performance of sectors geared towardsinnovation in processes benefits from a more bank-oriented financial system andconcentrated ownership structures.

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    File URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:c9d300b2-0b4b-4531-ad6d-ad565e4a19af/datastreams/ASSET1/content
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    Paper provided by Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) in its series Research Memorandum with number 013.

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    Date of creation: 2002
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    Handle: RePEc:unm:umamer:2002013
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    1. Winter, Sidney G., 1984. "Schumpeterian competition in alternative technological regimes," Journal of Economic Behavior & Organization, Elsevier, vol. 5(3-4), pages 287-320.
    2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
    3. Masahiko Aoki, 1998. "An Information Theoretic Approach to Comparative Corporate Governance," Working Papers 99004, Stanford University, Department of Economics.
    4. Kotaro Tsuru, 2000. "Finance and Growth: Some Theoretical Considerations and a Review of the Empirical Literature," OECD Economics Department Working Papers 228, OECD Publishing.
    5. Dosi, Giovanni, 1990. "Finance, innovation and industrial change," Journal of Economic Behavior & Organization, Elsevier, vol. 13(3), pages 299-319, June.
    6. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
    7. Storper, Michael, 1996. "Innovation as Collective Action: Conventions, Products and Technologies," Industrial and Corporate Change, Oxford University Press, vol. 5(3), pages 761-90.
    8. Breschi, Stefano & Malerba, Franco & Orsenigo, Luigi, 2000. "Technological Regimes and Schumpeterian Patterns of Innovation," Economic Journal, Royal Economic Society, vol. 110(463), pages 388-410, April.
    9. Pavitt, Keith, 1984. "Sectoral patterns of technical change: Towards a taxonomy and a theory," Research Policy, Elsevier, vol. 13(6), pages 343-373, December.
    10. Nelson, Richard R. & Sampat, Bhaven N., 2001. "Making sense of institutions as a factor shaping economic performance," Journal of Economic Behavior & Organization, Elsevier, vol. 44(1), pages 31-54, January.
    11. Chris Freeman & Luc Soete, 1997. "The Economics of Industrial Innovation, 3rd Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262061953, June.
    12. Timothy F. Bresnahan & Franco Malerba, 1997. "Industrial Dynamics and the Evolution of Firms' and Nations' Competitive Capabilities in the World Computer Industry," Working Papers 97030, Stanford University, Department of Economics.
    13. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March.
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