The Impact of Finance on Trade and Determinants of Start-Up Innovations

• Main Author: Goldbach, Stefan
• Format: Others
• Language: German; en
• Published: 2013
• Online Access: https://tuprints.ulb.tu-darmstadt.de/3699/1/Dissertation_SG.pdf; Goldbach, Stefan <http://tuprints.ulb.tu-darmstadt.de/view/person/Goldbach=3AStefan=3A=3A.html> (2013): The Impact of Finance on Trade and Determinants of Start-Up Innovations.Darmstadt, Technische Universität, [Ph.D. Thesis]

In comparison to other countries in the rest of the world, Germany (as one of the industrialized countries) is characterized by relatively high living standards in terms of GDP per capita and wages. German politicians often argue that exports and innovation are important fields for the German economy to sustain these welfare achievements. According to the World Trade Organization (WTO), Germany has ranked as one of the three top exporters (in US value) since 1953 in their time series of trade statistics. Therefore, the exporting economy is important from a historical perspective. In addition, Germany achieves a high position (15th out of 141 countries) for the global innovation index in 2012, according to the World Intellectual Property Organization (2012). In the following, this dissertation sheds light on the impact of finance on trade and the determinants of innovating activities within start-ups. The economic literature emphasizes an existing relationship between the innovating behavior of firms and their foreign operations. Many authors distinguish the participation in international trade between the probability of starting to export and the propensity (exports relative to total sales) of it in their analysis. Several empirical papers which examine this interrelation typically find a positive relationship between innovation and trading patterns of firms (e.g., Damijan et al. (2010), Roper and Love (2002), Sterlacchini (2001), Wagner (2001) or Wakelin (1998)) but the direction of causality remains unclear. Here, the focus is not on this explicit link between both fields but on different aspects within them. Chapter 2 starts with the provision of a comprehensive and detailed literature review on finance and trade. In particular, we concentrate on various aspects which are relevant for the subsequent three chapters: the general differences between exporters and non-exporters, the interrelation between finance and trade flows and the literature on trade in services. The following three chapters rely on a data set (MiMiK) which collects data on bank-firm relationships and is provided by Deutsche Bundesbank. The massive decline in international trade in 2008/09 (known as the 'Great Trade Collapse') is often attributed to the global deterioration in financial conditions after the bankruptcy of a US investment bank, Lehman Brothers. In a first step, Chapter 3 estimates the exporter premium in bank lending and highlights potential differences between exporters and non-exporters (independent of the financial crisis). We examine credit relationships in Germany, covering all loans of more than 1.5 million euro over the period from 2005 to 2010. The MiMiK data base itself provides only information about the (quarterly) credit exposure between borrower and lender. Therefore, we establish a unique data match with another data set which is also provided by Deutsche Bundesbank, Ustan. It contains (yearly) balance sheet information of firms, including export sales. The results show that there is an export premium in bank lending of about 16%. Chapter 4 primarily focuses on the empirical importance of external (bank) finance for exporters during (and after) the financial crisis. The previous MiMiK-Ustan match is extended with bank balance sheet data from BAKIS. We use this information to identify banks which are especially 'affected' by the financial crisis. The chapter investigates in a descriptive manner whether a correlation between exports and credit supply exists and whether banks which are classified as 'affected' decreased their credit exposures. Finally, we perform a nearest neighbor matching to identify similar firms which engage in foreign operations. Then, we show that firms which exhibit credit relationships with 'affected' banks do not export less than comparable firms which receive finance from healthy banks. Chapter 5 extends the previous analysis by estimating the exporter premium in bank lending for goods and service exporters separately. The MiMiK-Ustan match is enlarged with detailed transaction level data about service exports, the German International Trade in Services (SITS) statistics. Therefore, we are able to identify firms which primarily export services or goods and can evaluate our previous results on a more disaggregated level. First, we estimate the export premium in bank lending for goods exporters vs. non-exporters. Then, we examine whether service exporters depend more on external finance than goods exporters which would coincide with higher entry barriers for service exporters. Goods exporters have an export premium of 16% vs. non-exporters and service exporters a premium of 17% relative to goods exporters. Furthermore, we analyze the determinants of innovations within start-ups in a separate section. Chapter 6 deals with the question whether entrepreneurs with technical education are more innovative than economists in high-tech industries. Until now, the field of entrepreneurship has been relatively unexplored due to data limitations. To analyze this question, we examine a novel data set (KfW/ZEW Start-Up Panel) which contains a random cross-section of German start-up companies for 2007 and 2008. It provides information about entrepreneurial characteristics, especially details about the subject that was studied prior to the foundation of the start-up. In addition, the KfW/ZEW Start-Up Panel was exclusively designed to analyze research questions in the field of innovation. For this reason it contains multiple proxies to measure the innovating behavior of entrepreneurs. We show that natural scientists indeed are more engaged in R&D activity and more likely to release something new on the market than economists. The results depend largely on the definition of innovation and on the form of start-up (single vs. team).