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Corporate Finance and Comparative Advantage

  • Peter Egger

    ()

  • Christian Keuschnigg

    ()

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

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2009/DP-0904-Ke.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2009 with number 2009-04.

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Length: 359 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:usg:dp2009:2009-04
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