Financial constraints, government support, and firm innovation: empirical evidence from developing economies

The aim of this paper is two-fold. First, we empirically investigate the role of financial constraints on innovation activities. Second, we examine the significance of non-financial support provided by government on firm innovation. We employ firm-level survey data over the period 2006–2017 for 100 countries. Based on the direct indicators of financial constraints, different estimation methods and addressing the endogeneity concerns, we document that financial constraints have a significant negative impact on firms’ innovation activities. Further, we find a positive correlation between government support and the innovative activities of small-medium enterprises; and the impact is more pronounced in the case of financially unconstrained firms.