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Fostering Innovation Activities with the Support of a Development Bank: Evidence from Brazil 2003–2011

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Abstract

I evaluate the impact of the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) disbursements on R&D intensity of companies operating in the Brazilian manufacturing sector for the period of 2003–2011. Using instrumental variable (IV) technique, I find a crowding-in impact of receiving funding from BNDES on business-funded innovation intensity, resulting in an increased commitment in innovation activities for funded Brazilian manufacturing companies. The findings of this analysis provide new evidence regarding the industrial sector activity of the Brazilian development bank, adding on the debate about additionality/substitutability of public financial resources.

Résumé

Sur une période allant de 2003 à 2011, j'évalue l'impact des décaissements du Banco Nacional de Desenvolvimento Econômico e Social (BNDES) sur l'intensité de l’activité de R&D des entreprises opérant dans le secteur manufacturier au Brésil. En utilisant la méthode de la variable instrumentale, j'ai trouvé que le fait de recevoir un financement de la BNDES provoque un effet d’entraînement sur l'intensité de l'innovation financée par les entreprises. Pour les entreprises manufacturières brésiliennes récipiendaires des financements, cela se traduit par un plus grand engagement pour le financement d’activités d'innovation. Les conclusions de cette analyse fournissent de nouvelles preuves concernant l'activité du secteur industriel de la banque de développement brésilienne, ce qui vient nourrir le débat sur l'additionnalité ou la substituabilité des ressources financières publiques.

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Fig. 1

Source BNDES

Fig. 2

Source MCTI

Fig. 3

Source MCTI

Fig. 4

Source Author’s own elaboration based on data from BCB

Fig. 5

Source Author’s own elaboration based on data from BCB

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Data Availability

The data underlying this article cannot be shared publicly due to the confidentiality of the data.

Notes

  1. In some economies, there is the further problem of ‘financialization’, spending profits on boosting stock prices, rather than on long-run areas like human capital and R&D. For example, an increasing problem in advanced economies, is the use of share buybacks (to boost stock options, hence executive pay) rather than reinvesting the profits in a long-term innovations Lazonick, W. and M. Mazzucato (2013). "The risk-reward nexus in the innovation–inequality relationship: who takes the risks? Who gets the rewards?" Industrial and Corporate Change 22(4): 1093–1128.

  2. To promote a more rapid regional integration, some funds managed by BNDES devote 30% of the overall resources to the least developed areas of the country, specifically North, Northeast and Mid-West.

  3. It would have been interesting to compare BNDES figures with similar ones for commercial banks; however, to the best of my knowledge, similar data for the commercial banking sector are not available.

  4. From 1995 to 2012, the share of assets of the 10 largest banks increased from 71 to 89% Torres, E. and R. Zeidan (2016). "The life-cycle of national development banks: The experience of Brazil's BNDES." The Quarterly Review of Economics and Finance 62: 97–104.

  5. The ratio has been calculated expressing the numerator in R$’000th and the denominator in R$ million. The rescaling of the instrumental variable has been necessary due to the (expected) unproportionate size of net sales compared to the other indicator. Nevertheless, the validity and meaningfulness of the indicator is not affected by such transformation, simply requiring carefulness in the interpretation of the coefficients and in the calculation of the maximum (minimum) of the function.

  6. Dataset available at: http://www.bndes.gov.br/SiteBNDES/bndes/bndes_pt/Institucional/BNDES_Transparente/Consulta_as_operacoes_do_BNDES/painel_consulta_diretas.html.

  7. For the second-stage results of the model including each single instrument, please refer to Table 11 in the Appendix.

  8. For the first stage results of the model including each single instrument, please refer to Table 11 in the Appendix.

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Acknowledgement

A working, pre-print version of this paper is held by the University of Sussex at https://www.sussex.ac.uk/webteam/gateway/file.php?name=2020-16-swps-carreras.pdf&site=25 [SWPS 2020-16: Fostering Innovation Activities with the Support of a Development Bank: Evidence from Brazil, Marco Carreras, published in September 2020]. I am grateful to the anonymous reviewers from the SPRU Working Papers Series. Support from the Graduate Teaching Assistant Scholarship of the University of Sussex is gratefully acknowledged. I am grateful to the anonymous reviewers from the SPRU Working Papers Series and of the European Journal of Development Researct. The current version reflects the feedback and improvements of the anonymous reviewers. Support from the Graduate Teaching Assistant Scholarship of the University of Sussex is gratefully acknowledged.

Funding

This study was funded by University of Sussex.

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  1. Science Policy Research Unit (SPRU), University of Sussex, Brighton, UK

    Marco Carreras

  2. Institute of Development Studies, University of Sussex, Brighton, UK

    Marco Carreras

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Appendix

Appendix

See Tables 10, 11, and 12.

Table 10 Regressions results second stage IV one instrument—GMM
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Table 11 Regressions results first stage IV one instrument—GMM
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Table 12 First stage summary statistics
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Carreras, M. Fostering Innovation Activities with the Support of a Development Bank: Evidence from Brazil 2003–2011. Eur J Dev Res 35, 545–578 (2023). https://doi.org/10.1057/s41287-022-00517-1

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