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Does Access to Finance and Investment Climate Enhance Small and Medium Enterprises (SMEs) Innovation in India?

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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.

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Data Availability

The data that support the findings of this study are available from the corresponding author upon reasonable request.

Notes

  1. in.pdf (wiphttps://www.wipo.int/edocs/pubdocs/en/wipo_pub_2000_2022/in.pdfo.int)

  2. https://hub.unido.org/sites/default/files/publications/Firm-level%20NMIS%20Report.pdf

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Authors and Affiliations

  1. Department of Economics, Banaras Hindu University, Varanasi, U.P., 221005, India

    Ruchi Gupta

  2. Economics Section, Mahila Mahavidyalaya, Banaras Hindu University, Varanasi, U.P., 221005, India

    Bhanu Pratap Singh

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  1. Ruchi Gupta
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  2. Bhanu Pratap Singh
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Contributions

RG: data collection, methodology, software, analyzing results. BPS: conceptualization, supervision, writing—review and editing

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Correspondence to Bhanu Pratap Singh.

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Appendix

Appendix

Tables 6, 7, 8, 9, 10, 11, and 12 represent post-estimation tests with the 2SLS-IV models

Table 6 First-stage regression test—overdraft facility
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Table 7 First-stage regression test—trade credit
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Table 8 First-stage regression test—fixed asset
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Table 9 First-stage regression test—informal competition
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Table 10 First-stage regression test—power outage
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Table 11 First-stage regression test—capacity utilization
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Table 12 First-stage regression test—bribe
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Gupta, R., Singh, B.P. Does Access to Finance and Investment Climate Enhance Small and Medium Enterprises (SMEs) Innovation in India?. Oper. Res. Forum 5, 95 (2024). https://doi.org/10.1007/s43069-024-00381-1

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