The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a two-country endogenous growth model, both countries producing the same set of goods, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same set of goods, trade openness makes markets more competitive, reducing prices and raising the incentives to innovate. More general, a reduction on trade barriers enhances growth by reducing domestic firms' market power.
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Paper provided by European University Institute in its series Economics Working Papers with number
ECO2007/19.
Length: Date of creation: 2007 Date of revision: Handle: RePEc:eui:euiwps:eco2007/19
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Find related papers by JEL classification: F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies O3 - Economic Development, Technological Change, and Growth - - Technological Change
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