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The Link Between R&D and Financing Constraints in Manufacturing Sectors for Two Emerging Markets

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  • Ömer Tuğsal Doruk

    (Adana Alparslan Türkeş Science & Technology University
    Global Labor Organization (GLO) Fellow)

Abstract

This study examines the impact of financing constraints and R&D investment in two technology-intensive emerging economies: Brazil and Turkey. It is pointed out that both countries suffer from capital market inadequacies. Therefore, the impact of financing constraints on R&D spending is investigated using advanced econometric models. This study covers the period 1997–2019 for manufacturing firms in two emerging economies. A fractional probit model with a novel control function approach that accounts for heteroskedasticity, endogeneity, simultaneity and omitted variable bias was used in the present study. The results show a significant relationship between R&D expenditure and financing constraints for Brazil and Turkey. Moreover, the results suggest that internal financing encourages R&D spending that requires high initial fixed costs and has a high probability of failure for firms under financial constraints in these two emerging economies. Internal financing is a significant option for R&D spending for financially constrained firms in Turkey, while it is significant for financially unconstrained Brazilian firms in terms of internal financing. However, financial leverage has a negative effect on R&D spending for all firms in both countries. The results do not change when the different robustness tests are applied.

Suggested Citation

  • Ömer Tuğsal Doruk, 2024. "The Link Between R&D and Financing Constraints in Manufacturing Sectors for Two Emerging Markets," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 12596-12621, September.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:3:d:10.1007_s13132-023-01563-8
    DOI: 10.1007/s13132-023-01563-8
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