Date of Award
Bachelor of Arts
Mehmet Fuat Sener
finance, resources, allocation, skilled workers, economics
Economic theory suggests that the more financially constrained a firm, the lower its ability to allocate resources for innovation. I test this theory using firm-level survey data that covers 29 Eastern European and Central Asian countries. The survey is conducted in 2002, 2005, and 2009, and covers nearly 12,000 enterprises. I construct two baseline probit models to test the impact of financial constraints on firms’ ability to innovate a new product or upgrade an existing product. Existing literature suggests that the more financially constrained a firm, the less likely they are to innovate. Previous studies have also noted the reverse causality that may exist between these two indicators. To account for this potential endogeneity problem, I run probit regressions using instrumental variable techniques. My empirical findings suggest that the greater the difficulty of access to finance, the less likely a firm is to innovate. Conversely, I find that the following measurements positively influence a firm’s innovational activity: whether or not the firm has is internationally recognized; the percent of employees with a university degree; the number of full time employees; percent of skilled workers; and, whether or not the firm’s supplies were imported directly.
Zangrillo, Emily, "Innovation and Finance: A Firm Level Analysis on Emerging Markets" (2014). Honors Theses. 617.