This paper examines how financial market development affects technological innovation using data from 32 developed and emerging countries. It identifies economic mechanisms through which equity and credit markets influence innovation. The study finds that industries more dependent on external finance and high-tech intensive industries exhibit disproportionately higher innovation levels in countries with better developed equity markets. However, credit market development appears to discourage innovation in these industries. The paper provides new insights into the real effects of financial market development on the economy. It contributes to the literature on finance and growth, as well as finance and innovation. The study uses a panel-based fixed effects identification approach to examine the different impacts of equity and credit markets on innovation. The results show that equity market development promotes innovation in industries dependent on external finance, while credit market development discourages it. Additionally, equity market development promotes innovation in high-tech industries, while credit market development discourages it. The paper also discusses the role of financial markets in reducing financing costs, allocating resources, evaluating projects, managing risk, and monitoring managers. The study uses data from the NBER patent database, the Worldscope database, and the WDI/GDF database to analyze innovation and financial development. The results are robust to alternative econometric specifications and provide evidence of the contrasting impacts of equity and credit market development on innovation. The paper concludes that financial market development has real effects on the economy, particularly through its impact on innovation.This paper examines how financial market development affects technological innovation using data from 32 developed and emerging countries. It identifies economic mechanisms through which equity and credit markets influence innovation. The study finds that industries more dependent on external finance and high-tech intensive industries exhibit disproportionately higher innovation levels in countries with better developed equity markets. However, credit market development appears to discourage innovation in these industries. The paper provides new insights into the real effects of financial market development on the economy. It contributes to the literature on finance and growth, as well as finance and innovation. The study uses a panel-based fixed effects identification approach to examine the different impacts of equity and credit markets on innovation. The results show that equity market development promotes innovation in industries dependent on external finance, while credit market development discourages it. Additionally, equity market development promotes innovation in high-tech industries, while credit market development discourages it. The paper also discusses the role of financial markets in reducing financing costs, allocating resources, evaluating projects, managing risk, and monitoring managers. The study uses data from the NBER patent database, the Worldscope database, and the WDI/GDF database to analyze innovation and financial development. The results are robust to alternative econometric specifications and provide evidence of the contrasting impacts of equity and credit market development on innovation. The paper concludes that financial market development has real effects on the economy, particularly through its impact on innovation.