Publication Date:
2015-05-01
Description:
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 late-stage, 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)
Print ISSN:
1945-7669
Electronic ISSN:
1945-7685
Topics:
Economics
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