Author(s): Md. Qamruzzaman, Salma Karim, Ishrat Jahan
This study's motivation is to investigate the association between innovation, financial innovation and sustainable SME growth over 2006-2020 in Bangladesh with cross-sectional data. Unlashing the fresh evidence study performs baseline estimation with Dynamic OLS and Fully-modified OLS, Nonlinear Autoregressive distributed lagged (NARDL) for detecting asymmetric shock and System GMM for robustness. Furthermore, directional causality establishes by performing the Panel Granger-causality test under the error correction term. Baseline estimation documents positive statistically significant effects running from innovation and financial innovation to SMEs growth in all the aspects. Asymmetric effects of innovation and financial innovation on a firm’s growth unveil asymmetric relationships in the long and short run. Positive shocks in innovation and financial innovation establish a positive statistically significant linkage, and a negative shock reveals a negative association with SME growth. In contrast, the positive shocks are more intense than negative. Finally, the feedback hypothesis explains the causal relationship between innovative finance, innovation and SMEs growth in the long run and short run. The study advocates policy formulation for SME's progress so that the firms willing to adapt innovation and financial institutions to offer innovative financial products and services shall be accelerated.