Abstract
This paper examines two potential mechanisms - access to credit and reduction in relational risks - through which social trust can affect R&D investments. Social trust can increase R&D investments by expanding firms' access to external finance with which they can use to fund promising R&D projects. It can also increase R&D investments by reducing relational risks that expose firms to ex-ante and ex-post holdups or expropriation risks. Using industry-level data on R&D investment intensities in 20 OECD countries, I test these mechanisms by evaluating whether more external finance dependent and relational risk vulnerable industries exhibit disproportional higher R&D investment intensities in trust intensive countries. The results indicate that external finance dependent industries and relational risks vulnerable industries experience relatively higher R&D investment intensities in trust-intensive countries. Therefore, the results underline access to external finance and reduction in relational risks as causal pathways linking social trust and R&D investments.
Original language | English |
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Article number | 1744137420000156 |
Pages (from-to) | 809-830 |
Number of pages | 22 |
Journal | Journal of Institutional Economics |
Volume | 16 |
Issue number | 6 |
DOIs | |
Publication status | Published - Dec 2020 |
Keywords
- Access to credit
- innovation
- R&
- D
- relational risks
- trust
- FINANCIAL DEPENDENCE
- SOCIAL TRUST
- INNOVATION
- CONTRACTS
- GROWTH
- CREDIT
- TRADE