Capital Imports, Innovation Finance and New Comparative Advantage in Small Countries

Innovation is an important driver for national growth and value in small countries. Especially high-risk capital in the form of venture capital and private equity funds are important in today’s global market, because its import is the basis for new international business activities. This article describes the unprecedented growth of the high-tech sector in Israel in 1995–2003 as an example of how the combination of foreign high-risk sector-specific capital and domestic high-skilled labor generated a new comparative advantage for Israel. It provides an example to the new role of small and peripheral countries as originators of international business activities.