Financial constraints and innovation: Why poor countries don't catch up
This paper examines 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 restrain the ability 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.
We would like to thank Bronwyn Hall, Dietmar Harhoff, Bill Kerr, Klara Sabirianova Peter, John van Reenen, Oleksandr Talavera, and Joachim Winter as well as seminar participants at NBER, SFB-TR, University of Linz and University of Munich for comments and suggestions. This paper was partly written while Monika Schnitzer visited the University of California, Berkeley. She gratefully acknowledges the hospitality of the department as well as financial support by the German Science Foundation through SFB-TR 15. Gorodnichenko thanks NBER (Innovation Policy and the Economy program) for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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. citation courtesy of