The global crisis and firms’ investments in innovation

The longer term impact of the global crisis depends on how business innovation capacities were affected. Understanding which firms suffered most is essential for developing adequate post-crisis recovery policies. This paper provides first quantitative evidence on these questions based on an original firm-level dataset for eight Latin American countries in 2008–2009. We find the crisis led many firms to stop ongoing innovation projects. Probit regression results show that firms with access to public funding were less likely to abandon these investments. Younger firms and businesses supplying foreign multinationals or suffering export shocks were more likely to do so.

► This paper provides first quantitative evidence on the impact of the current global crisis on firms’ innovation profiles by exploring original firm-level data for eight Latin American countries in 2008-2009.
► While innovation performance did not decrease, one in four firms stopped innovation projects due to the global crisis. Rising financing constraints and the negative demand shock brought by the economic crisis likely had an impact on firms’ decisions to abandon innovation projects.
► Probit regression results show that firms with access to public funding were less likely to abandon these investment projects. This highlights the potentially significant role of public funding in stabilizing innovation investments during recession periods. Younger firms and businesses supplying foreign multinationals or suffering export shocks were more likely to do so. Since relations with foreign markets and firms are crucial for technology transfers, our findings suggest it is particularly important to study how these globally integrated firms were affected in view of developing suitable post-crisis policies.