Credit access and innovation activity in Vietnamese SME

Abstract

In the wake of Vietnam banking crisis 2008-2010, there has been more focus on access to finance for small and medium sized firms. Even though some studies has already suggested that limit access to credit might stagnate innovative process, scarce studies has put their focus on small firms in developing countries. For this reason, our study is tended to reduce that gap by analyzing how credit could have affected innovation activities of Vietnamese’s small and medium sized enterprises (SMEs) using data between 2007 to 2011. Our hypothesis is having access to credit allows Vietnamese SMEs aid their innovation process. Since, it would allow them to import new machineries, upgrade outdated production line, to cut cost, produce new products and/or improve their old products. In this paper we uses logit models and Fixed-effect models to test the hypothesis. Among others, logit models allow us analyzing effect of credit on firms each year, and fixed-effect models help us take advantage of our Vietnamese SMEs panel data sets. This study results suggest that easing credit access increased the likelihood of introducing new technology or applying new production line of Vietnamese SMEs. However, the effect of credit access on other types of innovation, like introducing new products and improving old products is inconsistent over the year, thus it needs to be studied further.