Firm Productivity, innovation and Financial Development

IMF Working Papers, February 1, 2010

Source details

Research question: How do firm-specific actions—in particular, innovation—affect firm productivity? And what is the role of the financial sector in facilitating higher productivity?
Core finding: Innovation is crucial for firm performance as it directly and measurably increases productivity.
Interaction with finance: The effects of innovation on productivity are mediated through the financial sector; firms reap the maximum benefits from innovation in countries with well-developed financial sectors.
Sectoral heterogeneity: The financial mediation effect is particularly important for firms in high-tech sectors, which typically have higher external financing needs.

Data source: A rich firm-level dataset (survey data referenced in keywords).
Geographic scope indicated as Global, with mentions of Central and Eastern Europe and Central Asia in keywords.
Firm types examined include high-tech firm and low-technology firm distinctions.
Productivity measures referenced: labor productivity and total factor productivity.

Strengthen financial sector development to amplify the productivity gains from firm-level innovation.
Support for external finance mechanisms is especially crucial for high-tech firms with higher external financing needs.
Policies that facilitate access to finance can increase the returns to innovation and thereby improve firm performance.

Capacity utilization
Emerging technologies
Financial markets
Financial sector development / financial system
Production and Productivity
Technology and Total factor productivity
Additional technical terms from keywords: book value, cost of capital, dependent variable, enterprise manager, industry dummy, survey data, WP