Access to External Finance and Innovation: A Macroeconomic Perspective

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Sultan Mehmood (CPB)

Discussant: Adam Elbourne (CPB)

Language: English

Registration:  Please register by sending an email to seminars@cpb.nl.

Abstract subject:
The article takes a macroeconomic perspective in studying innovation as one of the channels by which better access to financial markets affects growth. The Arellano-Bond and Blundell-Bond estimators that accommodate country specific heterogeneity, endogenous explanatory variables and measurement errors are used to study a panel of 76 countries from year 1988 to 2010. It is found that better access to external finance is a relevant factor positively and rapidly influencing innovation and hence long run growth. This positive effect on innovation is robust to both bank and capital market lending with the adverse effect of reduced access to finance on innovation felt disproportionately by lower income countries. However, the estimations suggest that the magnitude of the bank as opposed to capital market lending channel is greater. Moreover, though the recent banking crisis was accompanied with unprecedented illiquidity, this did not impact the positive structural relationship between external access to finance and innovation.

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