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Trade Liberalization, Competition and Growth

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  • Navas Antonio

    ()
    (Universidad de Alicante and Universidad Autonoma de Madrid)

  • Licandro Omar

    ()
    (IAE - CSIC (Consejo Superior de Investigaciones Científicas))

Abstract

Increasing evidence supports that international trade enhances innovation and productivity growth through an increase in competition. This paper develops a two-country endogenous growth model, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition to provide a theoretical support to this claim. Since countries are assumed to produce the same set of varieties, trade openness makes markets more competitive, reducing prices and increasing quantities. Since firms undertake cost reducing innovations, the increase in production pushes firms to innovate more. Compared to other oligopolistic competition models, we find a larger pro-competitive effect of trade on innovation under this framework, and this effect is increasing the larger the elasticity of substitution between products.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 11 (2011)
Issue (Month): 1 (May)
Pages: 1-28

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Handle: RePEc:bpj:bejmac:v:11:y:2011:i:1:n:13

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  1. Peretto, Pietro F., 2000. "Endogenous market structure and the growth and welfare effects of economic integration," Working Papers 00-14, Duke University, Department of Economics.
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Citations

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Cited by:
  1. Giammario Impullitti, 2008. "International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis," Economics Working Papers ECO2008/11, European University Institute.
  2. Long, Ngo Van & Raff, Horst & Stähler, Frank, 2011. "Innovation and trade with heterogeneous firms," Journal of International Economics, Elsevier, vol. 84(2), pages 149-159, July.
  3. Navas, Antonio, 2010. "La Apertura al Comercio Exterior y sus Efectos sobre la Productividad en Presencia de Diferencias Intersectoriales," Working Papers in Economic Theory 2010/04, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  4. Baboo M. Nowbutsing & Sonalisingh Ramsohok, 2012. "The rise of China: a new fear of trade competition for Mauritius?," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 5(2), pages 91-106, June.
  5. Navas, Antonio, 2012. "Asymmetric trade liberalization, sector heterogeneity and Innovation," Working Papers in Economic Theory 2012/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  6. Antonio Navas Ruiz, 2013. "Asymmetric trade liberalisation, sector heterogeneity andinnovation," FIW Working Paper series 127, FIW.
  7. Giammario Impullitti & Omar Licandro, 2010. "Trade, Firm selection, and innovation: the competition channel," UFAE and IAE Working Papers 841.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  8. Armando Garcia Pires, 2012. "International trade and competitiveness," Economic Theory, Springer, vol. 50(3), pages 727-763, August.
  9. Antonio Navas Ruiz, 2012. "Asymmetric trade liberalization, sector heterogeneity and industry productivity growth," Working Papers. Serie AD 2012-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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