A Comprehensive Evaluation of the Non-Linear Effects of Financial Development and Economic Freedom on Firm Innovation: Insights from a Logistic Model

Innovation activities often have high costs, require highly skilled personnel and a favorable macroeconomic environment. Among these factors, financial development and economic freedom play an important role in creating favorable conditions for mobilizing capital for businesses’ innovation activities. To clarify these effects, our research uses the logistic model to determine the non-linear effects of economic freedom and financial development on firm innovation. These effects are complex and non-linear: in early stages, financial development may inhibit innovation due to inefficiencies, but advanced development reverses this trend. Similarly, the benefits of economic freedom diminish at higher levels, suggesting an optimal range of policies and financial infrastructure for maximizing innovation. To stimulate innovation, it is essential to develop and optimize the financial market and economic freedom. Thus, policymakers should foster a robust and fair financial market and implement specific incentive mechanisms tailored to support innovative enterprises.