Abstract
We present a formal and empirical framework that links the technological capacity of a country, reflected in its National System of Innovation, with the financial constraints it faces. The paper is divided into two sections. The first one introduces a stochastic growth model based on the relative level of technological development of countries, which determines their productivity and capacity to finance innovation activities. The second section describes the empirical conditioning observed in the innovation outputs of countries determined by their financial constraints and time period relative to the economic crisis of 2008. We classify a panel sample of European Union countries according to their technological development level and find that financial stability constraints negatively affect the less developed ones, a relationship that weakens as their innovation capacity increases. We also observe that financial stability becomes significant among technologically developed countries when reacting to the exogenous shock triggered by the crisis, while laggards remain constrained through the entire 2000–2018 sample period.
Highlights
The technological infrastructure of a country requires a credit system that facilitates the development of new innovations and the assimilation of negative shocks (Perez, 2004; O’Sullivan, 2005)
The results obtained highlight the fact that if the economic and financial evolution of countries are conditioned by their level of technological development, laggards will tend to diverge from the growth path of the innovators while facing increasingly stricter constraints in their capacity to finance innovation activities
This technique has been applied to test the relationship existing between financial constraints and economic growth since it allows for the use of different instruments in the estimation (Popov, 2017) In particular, it takes into account the path-dependent trajectory of the cumulative process that characterizes innovations (Dosi, 1988; Castellacci, 2008)
Summary
The technological infrastructure of a country requires a credit system that facilitates the development of new innovations and the assimilation of negative shocks (Perez, 2004; O’Sullivan, 2005). Technological and Economic Development of Economy, 2020, 26(6): 1366–1398 ture has focused on the importance of the financial structure of countries as a determinant of their capacity to generate new learning opportunities and acquire technological knowledge (Dosi, 1990; Aghion et al, 2005; Mazzucato, 2013) In this regard, the relationship between the financial capabilities of countries and innovation outputs is generally conditioned by economic cycles and exogenous shocks such as the crisis of 2008 (Archibugi & Fillippeti, 2011; Archibugi et al, 2013). We design a stochastic growth model where the level of technological development of country conditions the productive ability of its human capital together with the financial capacity of its firms and the resulting innovation probability. The results obtained highlight the fact that if the economic and financial evolution of countries are conditioned by their level of technological development, laggards will tend to diverge from the growth path of the innovators while facing increasingly stricter constraints in their capacity to finance innovation activities.
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