Financial Development, the Choice of Technology, and Comparative Advantage

Gong, Binglin and Zhou, Haiwen (2017): Financial Development, the Choice of Technology, and Comparative Advantage. Published in: Journal of International Trade and Economic Development , Vol. 23, No. 8 (2014): pp. 1238-1261.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial development, the choice of technology, comparative advantage, oligopolistic competition, increasing returns
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

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