Firm Productivity, Innovation, and Financial Development
Era Dabla‐NorrisInternational Monetary Fund, 700 19th Street, N.W., Washington, DC 20431, USAErasmus KerstingVillanova University, Department of Economics, 800 E. Lancaster Ave., Villanova, PA 19085, USAGeneviève VerdierInternational Monetary Fund, 700 19th Street, N.W., Washington, DC 20431, USA
2012en
ABI
Abstract
How do firm‐specific actions—in particular, innovation—affect firm productivity? What is the role of the financial sector in facilitating higher productivity? Using a rich firm‐level data set, we find that innovation is crucial for firm performance as it directly and measurably increases productivity. The impact of innovation on productivity is larger in less‐developed countries. Evidence of financial sector development influencing the innovation‐productivity link is weak, but the effect is difficult to identify due to correlation between indicators of a country's financial and nonfinancial development. Furthermore, we find evidence that the innovation effect on productivity is more significant for high‐tech firms than for low‐tech firms.
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