SMU SOE Seminar Series (March 3, 2026): Innovation Potential, Firm Life Cycle, and Cross-Country Productivity Differences

TOPIC:

ABSTRACT

I provide new facts on firm type, innovation quality and innovation frequency across countries. In developed countries, firm type, innovation quality, and innovation frequency are mostly determined at birth. In developing countries, there are fewer innovative and radically innovative firms. Additionally, these firms have lower radical innovation frequency but higher incremental innovation frequency. The cross-country difference is mainly observed in high external financial dependence industries. To explain these facts, I build an endogenous growth model with financial frictions and firm heterogeneity and demonstrate that collateral constraints combined with limited liability conditions impede innovative firm creation and distort firms' choice between radical and incremental innovation in developing countries. I offer new policy implications for countries at different development stages.