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Innovation, Trade, and Finance

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  • Peter Egger
  • Christian Keuschnigg

Abstract

Heterogeneous firms invest in R&D and expansion investment. Venture capital specializes in R&D financing where problems are largest. Marginal firms get funded by venture capital, while firms with larger debt capacity obtain cheaper bank financing. In the latestage, cash-rich firms invest at an optimal scale, while cash-poor firms are restricted. A country's financial and institutional development determines entry and expansion of firms and their comparative advantage in producing innovative goods. We illustrate how tariffs, R&D subsidies, institutional reform and venture capital improve access to capital, expand innovative industries, boost national welfare and may result in ambiguous international welfare spillovers. (JEL D21, F11, F13, G24, G32, O32)

Suggested Citation

  • Peter Egger & Christian Keuschnigg, 2015. "Innovation, Trade, and Finance," American Economic Journal: Microeconomics, American Economic Association, vol. 7(2), pages 121-157, May.
    • Handle: RePEc:aea:aejmic:v:7:y:2015:i:2:p:121-57
    Note: DOI: 10.1257/mic.20120032
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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