Does Access to Finance and Investment Climate Enhance Small and Medium Enterprises (SMEs) Innovation in India?
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Date
2024
Authors
Journal Title
Operations Research Forum
Journal ISSN
Volume Title
Publisher
Springer International Publishing
Abstract
Innovation is a tool by which a firm can enhance, compete, and sustain in a dynamic world. Innovative firms are engines of total factor productivity and economic growth. However, financially constrained enterprises are less innovative in comparison to unconstrained firms in developing countries. The major aim of the study is to investigate the effects of access to finance and the investment climate condition on the innovation of SMEs in India using firm-level data on 6385 firms from the World Bank Enterprise Survey (WBES), 2022. The study employs two-stage least square-instrument variable (2SLS-IV) approach to examine the relationship. Post-estimation tests such as Cragg�Donald F-statistic and Stock and Yogo are applied to check the model�s strength and validity. In addition, the Sargan and Basmann test is applied to test for overidentification in the model. The study�s major findings suggest that long-term finance promotes innovation whereas investment climate condition such as bribes adversely affects it. Hence, in addition to expanding access to long-term finance, emphasis should be given on investment climate such as containing bribes while framing policies to promote innovation and support SMEs in India. � The Author(s), under exclusive licence to Springer Nature Switzerland AG 2024.
Description
Keywords
Access to finance, Innovation, Investment climate, SMEs, Two-stage least square method (2SLS)