Firm Productivity, innovation and Financial Development

How do firm-specific actions-in particular, innovation-affect firm productivity? And what is the role of the financial sector in facilitating higher productivity? Using a rich firm-level dataset, we find that innovation is crucial for firm performance as it directly and measurably increases productivity. Moreover, its effects on productivity are mediated through the financial sector; firms reap the maximum benefits from innovation in countries with well-developed financial sectors. This effect is particularly important for firms in high-tech sectors, which typically have higher external financing needs.
Publication date: February 2010
ISBN: 9781451963250
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Finance , innovation , survey data , financial development , , survey , dummy variable , equation , stock market , Innovation and Invention: Processes and Incentives , Financial Development , General Financial Markets

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