The effect of financial inclusion on firm innovation in emerging markets

Abstract

Firms in emerging markets experience less developed financial markets in comparison to developed countries. These constraints cause difficulties in using and accessing financial services. Financial inclusion covers these aspects and is getting more recognition the last few years. Still, firms in emerging markets experience less financial inclusion. Access and usage of financial services could boost the funds for firms to engage in innovative activities. Firm innovation is a driver for a country’s economy growth rate. This study has researched the effect of financial inclusion on firm innovation in emerging markets. Additionally, this study has researched the interaction effects of informal capital and firm size with financial inclusion on firm innovation. Informal capital is a widely used way of obtaining funds in emerging markets, since the financial institutions are less developed. A larger firm size provides a firm with higher earnings which may alter the importance of being financially included. Results are obtained by using data from the World Bank Enterprise Surveys in a binominal logistic regression.