Credit availability and propensity to innovate of small and medium enterprises

We aim to analyze the impact of credit availability on firms’ probability to innovate. Using detailed information on more than five thousand five hundred credit lines to small and medium enterprises (SMEs), we find that innovative activities are positively affected by measures of bank loan availability. Further, estimates also show that firms located in an industrial district have higher probability to be innovative than other firms. Our results support the idea that Italian institutions should undertake and reinforce an economic policy oriented to sustain the access to credit of SMEs as a key element for the growth and development of innovative firms.