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Heterogeneous effects of financial constraints on innovation: Evidence from Chile

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  • Roberto Alvarez
  • Gustavo A. Crespi

Abstract

In this paper we study the effect of financial constraints on innovation using data from a 2007 survey of more than 10,000 Chilean firms. In contrast with other surveys, this dataset allows for the construction of a direct indicator of constraints on credit for investment in innovation and sheds light on how these restrictions affect firm’s innovation outcomes heterogeneously. In our empirical approach, we deal with several econometric problems associated with the endogeneity of the credit constraint indicator and the binary nature of the innovation variable. We find that financial constraints are quantitatively important barriers for innovation in Chile. These constraints are particularly severe in the case of small firms and firms operating in the service sectors. We also find that these constraints are specific to innovation-related investments and particularly with regard to the accumulation of intangible assets.

Suggested Citation

  • Roberto Alvarez & Gustavo A. Crespi, 2015. "Heterogeneous effects of financial constraints on innovation: Evidence from Chile," Science and Public Policy, Oxford University Press, vol. 42(5), pages 711-724.
    • Handle: RePEc:oup:scippl:v:42:y:2015:i:5:p:711-724.
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    File URL: http://hdl.handle.net/10.1093/scipol/scu091
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    References listed on IDEAS

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    1. P. Mohnen & F. Palm & S. Loeff & A. Tiwari, 2008. "Financial Constraints and Other Obstacles: are they a Threat to Innovation Activity?," De Economist, Springer, vol. 156(2), pages 201-214, June.
    2. 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.
    3. Bronwyn H. Hall & Nathan Rosenberg (ed.), 2010. "Handbook of the Economics of Innovation," Handbook of the Economics of Innovation, Elsevier, edition 1, volume 1, number 1.
    4. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 609-639, Elsevier.
    5. Frédérique Savignac, 2006. "The impact of financial constraints on innovation: evidence from french manufacturing firms," Cahiers de la Maison des Sciences Economiques v06042, Université Panthéon-Sorbonne (Paris 1).
    6. Simona Iammarino & Francesca Sanna-Randaccio & Maria Savona, 2007. "The perception of obstacles to innovation. Multinational and domestic firms in Italy," Working Papers of BETA 2007-12, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
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    Cited by:

    1. Humaira Husain & Khairul Alom & Kazi Md. Tarique, 2018. "Nexus between Firm Level Investment and Financing Constraint Measures: A Critical Review," Review of Economics & Finance, Better Advances Press, Canada, vol. 12, pages 88-101, May.
    2. Zahler, Andrés & Goya, Daniel & Caamaño, Matías, 2018. "The Role of Obstacles to Innovation on Innovative Activities: An Empirical Analysis," IDB Publications (Working Papers) 73, Inter-American Development Bank.
    3. Zahler, Andrés & Goya, Daniel & Caamaño, Matías, 2022. "The primacy of demand and financial obstacles in hindering innovation," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    4. Jaureguy, Micaela Vidal & Bianchi, Carlos & Blanchard, Pablo, 2023. "Financial and knowledge barriers to innovation: Complementary and substitution effects on innovative effort," Research Policy, Elsevier, vol. 52(7).
    5. Arza, Valeria & López, Emanuel, 2021. "Obstacles affecting innovation in small and medium enterprises: Quantitative analysis of the Argentinean manufacturing sector," Research Policy, Elsevier, vol. 50(9).
    6. Ortiz, Rodrigo & Fernandez, Viviana, 2022. "Business perception of obstacles to innovate: Evidence from Chile with pseudo-panel data analysis," Research in International Business and Finance, Elsevier, vol. 59(C).
    7. Nikolay Chichkanov & Ian Miles & Veronika Belousova, 2019. "Conditions For Innovation In Kibs: Evidence From Russia," HSE Working papers WP BRP 92/STI/2019, National Research University Higher School of Economics.
    8. Kexian Zhang & Xiaoying Liu & Min Hong, 2021. "Discretionary Effort on Green Technology Innovation: How Chinese Enterprises Act when Facing Financing Constraints," PLOS ONE, Public Library of Science, vol. 16(12), pages 1-19, December.
    9. Tacsir, Ezequiel & Pereira, Mariano & Favata, Federico & Leone, Julian, 2024. "Competition and Distance to the Technological Frontier as Determinants of Innovation: A Multilevel Analysis for Latin America," IDB Publications (Working Papers) 13833, Inter-American Development Bank.
    10. Roberto Alvarez & Miguel A. Gonzalez, 2023. "Are Innovation Barriers Different for Chilean Exporters and Non-Exporters?," Working Papers wp551, University of Chile, Department of Economics.
    11. Morris, Diego M., 2018. "Innovation and productivity among heterogeneous firms," Research Policy, Elsevier, vol. 47(10), pages 1918-1932.
    12. GuoHua Cao & WenJun Geng & Jing Zhang & Qi Li, 2023. "Social network, financial constraint, and corporate innovation," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(3), pages 667-692, September.
    13. Yu, Jian & Fu, Jiasha, 2021. "Credit rationing, innovation, and productivity: Evidence from small- and medium-sized enterprises in China," Economic Modelling, Elsevier, vol. 97(C), pages 220-230.

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