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Corporate Finance and Comparative Advantage

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  • Peter Egger
  • Christian Keuschnigg

Abstract

Innovative firms typically have a high growth potential, need external funds to finance investment, and rely on the key effort and know-how of inside entrepreneurs. Given the limited amount of tangible assets and the non-contractible nature of entrepreneurial effort, these firms are often financially constrained. Access to external funds becomes an important factor in the expansion of innovative industries. This paper models a two sector economy of innovative and standard industries and shows how the pattern of comparative advantage is shaped by factor endowments and variables relating to corporate finance. In particular, a larger equity ratio of young entrepreneurial firms and tough corporate governance standards relax the financing constraints and create a comparative advantage in innovative industries

Suggested Citation

  • Peter Egger & Christian Keuschnigg, 2009. "Corporate Finance and Comparative Advantage," University of St. Gallen Department of Economics working paper series 2009 2009-04, Department of Economics, University of St. Gallen.
    • Handle: RePEc:usg:dp2009:2009-04
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    References listed on IDEAS

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    Cited by:

    1. Spiros Bougheas & Rod Falvey, 2011. "The Impact of Financial Market Frictions on Trade Flows, Capital Flows and Economic Development," Discussion Papers 11/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. Fauceglia, Dario, 2015. "Credit constraints, firm exports and financial development: Evidence from developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 53-66.
    3. Spiros Bougheas & Rod Falvey, 2009. "The impact of financial market imperfections on trade and capital flows," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 6(1), pages 91-110, Julio - D.
    4. Peter Egger & Christian Keuschnigg, 2015. "Innovation, Trade, and Finance," American Economic Journal: Microeconomics, American Economic Association, vol. 7(2), pages 121-157, May.
    5. Peter H. Egger & Michaela Kesina, 2014. "Financial Constraints and the Extensive and Intensive Margin of Firm Exports: Panel Data Evidence from China," Review of Development Economics, Wiley Blackwell, vol. 18(4), pages 625-639, November.

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    More about this item

    Keywords

    Innovative firms; corporate finance; comparative advantage;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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