evidence by Hall (2011) and Mohnen and Hall (2013). In addition, we include a variable for age to control for the different propensity of firms to innovate over their life cycle (Huergo and Jaumandreu 2004). Finally, we control for ownership as, especially in developing countries, being foreign owned may facilitate acquisition and adoption of foreign technologies. Size, age, and ownership have been also recognized as determinants of financing constraints (Beck et al. 2006). The more expensive it is to finance innovation externally, the more detrimental to innovation are the effects of financial constraints. Descriptions of the main variables employed in the estimations are reported in Table 1.

**Table 1: Variables definition**

|**Variable**|**Description**|
|---|---|
||**_Dependent variables_**<br>|
|**Innovation score**|It is computed using the following 4 questions from the WB ES: (1) "Does this<br>establishment at present use technology licensed from a foreign-owned company,<br>excluding office software?" (2) "During the last three years, has this establishment<br>introduced new or significantly improved products or services?" (3) "During the<br>last three years, has this establishment introduced any new or significantly<br>improved process?" (4) "During the last fiscal year, did this establishment spend on<br>formal research and development activities, either in-house or contracted with other<br>companies, excluding market research surveys?". The score is then rescaled using<br>the total number ofquestions for which an answer is available.|
|**Innovation dummy**|It takes a value of 1 if the innovation score isgreater than 0,0 otherwise.|
|**Adoption score**|The adoption score uses the questions (1) to (3) used for computing the innovation<br>score. For each question, a value of 1 is assigned to Yes answers, 0 otherwise. The<br>score is then rescaled using the total number of questions for which an answer is<br>available.|
|**Adoption dummy**|It takes a value of 1 if the adoption score isgreater than 0,0 otherwise.|
|**Invention**|The invention dummy considers the question (4) only. It takes the value of 1 if a<br>firm has recorded expenses in research and development,0 otherwise.|
||**_Main independent variables_**|
|**% Fixed assets funded by banks**|Proportion of fixed assets financed bybanks.|
|**% Fixed assets funded by NBFI**|Proportion of fixed assets financed by microfinance institutions, credit<br>cooperatives,credit unions,and finance companies.|
|**% Fixed assets funded by other**|Proportion of fixed assets financed by family and friends, money lenders, trade<br>credit,and advances from customers.|
||**_Other controls_**|
|**Log (employees)**|Natural logarithm of the firm’spermanent full-time employees.|
|**log (laborproductivity)**|Natural logarithm of annual real sales divided byfull-time employees|
|**Age**|Difference between the year the firm was formally registered and the year the firm<br>was surveyed.|
|**Percentage of domestic ownership **|Percentage of ownershipassociated to domestic entities/individuals.|

Note: The source of data is World Bank Enterprise Surveys.

The descriptive statistics appear in Table 2. The median firm in our sample reports that has undertaken two of the four elements we consider in the innovation score (Table 2, Panel A). Moreover, 78 percent of the enterprises undertake at least one of the four elements used to categorize a firm as being 8