Jun LiFollow

Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)



Committee Chair/Advisor

Santiago Caicedo

Committee Member

Cheng Chen

Committee Member

Aspen Gorry

Committee Member

Michal M. Jerzmanowski


This paper examines the effects of credit constraints on aggregate innovation when firms face heterogeneous innovation costs and have differential access to credit. Better credit access affects aggregate innovation through (i) a direct effect by facilitating firms to innovate, (ii) a market share effect by encouraging low-cost firms to expand, and (iii) a value effect that increases competition and deteriorates high-cost firms’ innovation. We first develop a structural model featuring the above three channels. We then contrast this theory with the Chinese firm-level data documenting that Chinese state-owned enterprises are less constrained but face higher innovation costs than their private counterparts. We find that relaxing credit constraints promotes firms’ innovation and encourages private enterprises’ expansion. Guided by the reduced-form findings, we estimate the model and show that better credit access only improves aggregate innovation on a small magnitude. The value effect counteracts the direct andmarket share effect, attenuating the net effect on aggregate innovation.



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