Formal credit and innovation: Is there a uniform relationship across types of innovation?

Nirosha Wellalage () and Stuart Locke

International Review of Economics & Finance, 2020, vol. 70, issue C, 1-15

Abstract: We investigate the formal credit effect on firm level innovations of small and medium enterprises in developing economies. Using the instrumental regression method, we control for potential endogeneity in innovation and credit relationships. Results indicate that formal credit availability boosts all four types of innovations. However, this impact is more significant for soft innovations compared to hard innovations. The results also point to the importance of informal finance as a source of external finance for firms where capital markets suffer from imperfections. Our study encourages the development of policy around financing for various types of innovation, which is especially suited for developing economies.

Keywords: Innovation; SMEs; Formal credit; Endogeneity; Instrumental probit regression; Developing economies (search for similar items in EconPapers)
JEL-codes: G2 G28 O1 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:70:y:2020:i:c:p:1-15

DOI: 10.1016/j.iref.2020.07.004

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