Macroeconomic instability, innovation & financial constraints in Argentina

ARZA, VALERIA

Brighton

Conferencia; The First International PRIME Doctoral Conference; 2004

Prime Network, SPRU, University of Sussex

Individual behaviour is to some extent socially derived, and in the Argentinean historical context, which is characterised by structural macro uncertainty, this social dimension boasted a generalised search for defensive flexibility. Consequently, long-term proactive strategies, such as innovative choices, were deterred.  As macro policy itself, individual decisions were generally driven by short-term objectives. This paper used panel data information from Argentina during the 1990s. It is shown that those activities that clearly stemmed from a search for defensive flexibility (e.g reselling strategies) were pervasive for investment in innovation.  Futhermore, it is argued that in a macro unstable environment, only those firms seen as “safe” by the financial community would have prioritised access to credit.  It was found that firms that were more susceptible to the unstable macro conditions had to rely more heavily on their internal funds to invest both in innovation and in new machinery. This was true even after controlling for micro (e.g. scale), meso (e.g. sector) and macro (e.g. years) determinants. Results for investment of innovation were neat, strong and highly significant. Although still significant, similar results were less strong for investment in new machinery, which is the variable traditionally used in the financial constraints literature.  Thus, it seems to be that a weak financial position would cut down innovation budget with higher priority than other type of investment.