Financial Development, the Choice of Technology, and Comparative Advantage

Binglin Gong and Haiwen Zhou

MPRA Paper from University Library of Munich, Germany

Abstract: In this general equilibrium model, banks and manufacturing firms engage in oligopolistic competition. A more advanced manufacturing technology has a higher fixed cost but a lower marginal cost of production. We show that manufacturing firms located in a country with a more efficient financial sector choose more advanced technologies and this country has a comparative advantage in the production of manufactured goods. Even though the foreign country has a less developed financial sector than the home country, the opening up of trade with the foreign country leads domestic manufacturing firms to adopt more advanced technologies. An increase in the level of efficiency in the financial sector of one country causes manufacturing firms in both countries to adopt more advanced technologies.

Keywords: Financial development; the choice of technology; comparative advantage; oligopolistic competition; increasing returns (search for similar items in EconPapers)
JEL-codes: D43 F12 O16 (search for similar items in EconPapers)
Date: 2017-12-07
New Economics Papers: this item is included in nep-gro and nep-int
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Published in Journal of International Trade and Economic Development 8.23(2014): pp. 1238-1261

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