Affiliation:
1. ETH Zuerich, KOF, Weinbergstrasse 35, CH-8092 Zurich, Switzerland (e-mail: )
2. University of St. Gallen, FGN, Varnbuelstrasse 19, CH-9000 St. Gallen (e-mail: )
Abstract
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)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Cited by
25 articles.
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