DRIFTING ON A CALMA CHICHA AFTER COUNTLESS STORMS: How macroeconomic uncertainty affects firms' de cisions to innovate in emerging countries

Valeria Arza, Elisa Giuliani and Federica Nieri

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: Emerging economies are subject to macroeconomic fluctuations and policy swings which generate firms' uncertainty about the future behavior of key macroeconomic variables. Drawing on the theory of irreversible investments, we focus on innovation and suggest that macroeconomic uncertainty may be a core factor explaining why firms in developing countries struggle to innovate. Using micro data on Argentinean firms during the 1990s, we find that this is particularly the case for firms performing below their aspirations as they fear losses more than potential gains, and for domestic firms, which, as opposed to subsidiaries of multinationals, cannot diversify their risk internationally.

Keywords: Macroeconomic uncertainty; innovation; emerging countries; Argentina (search for similar items in EconPapers)
JEL-codes: D81 F23 O31 (search for similar items in EconPapers)
Date: 2019-12-01
Note: ISSN 2039-1854
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2019/251

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