Financial system, R&D intensity and comparative advantage

Abstract

In this paper, we test whether financial system affects the export performance of R&D intensive industries. We consider four different dimensions of financial system: (1) financial development, (2) financial liberalization, (3) financial integration and (4) foreign banks. Our results show that financial development and financial integration increase exports relatively more in R&D intensive industries. These effects are highly robust. Financial liberalization and foreign banks do not have such effects. Our results also show that the positive effect of financial integration disappears when the quality of institutions and the level of financial development are low. To the best of our knowledge, this paper is the first study that examines the effects of different dimensions of financial system on exports through R&D channel.