Financial Constraints and Innovation: Why Poor Countries Don't Catch Up

47 Pages Posted: 8 Mar 2010

See all articles by Yuriy Gorodnichenko

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Monika Schnitzer

University of Munich - Department of Economics; Centre for Economic Policy Research (CEPR)

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Abstract

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.

Keywords: innovation, productivity, financial constraint, export, technology frontier, BEEPS

JEL Classification: O3, O16, F1, G3

Suggested Citation

Gorodnichenko, Yuriy and Schnitzer, Monika, Financial Constraints and Innovation: Why Poor Countries Don't Catch Up. IZA Discussion Paper No. 4786. Available at SSRN: https://ssrn.com/abstract=1566335

Yuriy Gorodnichenko (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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Berkeley, CA 94720-3880
United States

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Monika Schnitzer

University of Munich - Department of Economics ( email )

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Munich, D-80539
Germany
+49 89 2180 2217 (Phone)
+49 89 2180 2767 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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