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We analyze the impact of reduced financial constraints on innovating firms' performance and access to credit using a reform that allowed firms to use patents as collateral. We develop a theoretical framework to guide the analysis and quantify the aggregate impact of reduced financial constraints on misallocation and productivity by mapping data moments, reduced form results and model counterparts. Our empirical results suggest that reduced financial constraints led to an increase in firms' capital stock and bank debt. Parameterizing the model we find quantitatively large gains in output per worker in the sectors of the economy dominated by constrained firms.
