Credit and Product Innovation in Emerging Markets: Evidence from India

Siddharth George, Divya Kirti, Nils Olle Herman Lange, Maria Martinez Peria and Rajesh Vijayaraghavan

No 2025/192, IMF Working Papers from International Monetary Fund

Abstract: We study how access to bank financing affects product innovation in a developing country context by analyzing a reform that broadened credit eligibility for many small Indian manufacturing firms. Newly eligible firms borrow more but, on average, do not introduce new or more complex products or expand product scope. Many firms appear to operate below efficient scale and use credit to expand existing product lines rather than innovate. Moreover, most firms face several additional barriers that weaken the impact of credit on innovation. Among firms that do not face these additional barriers, credit access boosts innovation, as in advanced economies.

Keywords: Innovation; SMEs; financial frictions; market barriers; product innovation; research assistance; product scope; NUS Macro; eligible firm; Financial inclusion; Credit; Bank credit; Emerging and frontier financial markets; Manufacturing; Global (search for similar items in EconPapers)
Pages: 71
Date: 2025-09-26
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