Innovation, Trade and Finance

Christian Keuschnigg and Peter Egger

University of St. Gallen Department of Economics working paper series 2010 from Department of Economics, University of St. Gallen

Abstract: The paper proposes a model where heterogeneous firms choose whether to undertake R&D or not. Depending on R&D choice, innovative firms are more productive, have larger investment opportunities and lower own funds than non-innovating firms. As a result, innovative firms are financially constrained while standard firms are not. The efficiency of the financial sector and a country's institutional quality relating to corporate governance determine the share of R&D intensive firms and the comparative advantage in innovative goods. We show how protection, R&D subsidies and financial development improve access to external finance in distinct ways, support the expansion of innovative industries and boost national welfare. International welfare spillovers depend on the interaction between terms of trade effects and financial frictions and may be positive or negative, depending on foreign countries' trade position.

Keywords: Innovation; financial development; R&D subsidies; protection (search for similar items in EconPapers)
JEL-codes: F11 G32 L26 O38 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-03
New Economics Papers: this item is included in nep-ino, nep-int, nep-mic and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://ux-tauri.unisg.ch/RePEc/usg/dp2010/DP-1008-Ke.pdf (application/pdf)

Related works:
Journal Article: Innovation, Trade, and Finance (2015)
Working Paper: Innovation, Trade, and Finance (2011)
Working Paper: Innovation, Trade, and Finance (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:dp2010:2010-08

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