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An inverted-U relationship between product market competition and growth in an extended Romerian model

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  • Alberto BUCCI

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Abstract

The influence of product market competition on growth is reconsidered by developing an extension of the basic Romerian model of horizontal product innovation. We find that the relationship between competition and growth is inverse-U shaped, provided that the non accumulated factor input (e. g. labour) is employed in each economic activity. We explain this result by the interplay between two effects. For low values of product market competition, the positive resource allocation effect (the effect that an increase of competition has on the sectoral distribution of labour) outweigh s the negative profit incentive effect (the effect that an increase of competition has on firms' incentive to innovate). When prod uct market competition is intense, the resource allocation and pr ofit incentive effects are both negative and reinforce each other in inducing a negative correlation between competition and growth

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Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2004-26.

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Date of creation: 01 Jan 2004
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Handle: RePEc:mil:wpdepa:2004-26

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Keywords: Horizontal Differentiation; Product Market Competition; Technological Change; Endogenous Growth;

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Citations

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Cited by:
  1. Daria Onori, 2011. "Welfare, Competition, Specialization and Growth," Working Papers halshs-00580722, HAL.
  2. Scopelliti, Alessandro Diego, 2009. "Competition and Economic Growth: a Critical Survey of the Theoretical Literature," MPRA Paper 20079, University Library of Munich, Germany.
  3. Bianco, Dominique, 2008. "Growth and Competition in a Model of Human Capital Accumulation and Research," MPRA Paper 10913, University Library of Munich, Germany.
  4. Alberto BUCCI, 2004. "Economic growth in an enlarged Europe: the human capital and R&D dimensions," Departmental Working Papers 2004-22, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  5. Wang, Vey & Lai, Chung-Hui, 2011. "Franchise fee, competition and economic growth," Economic Modelling, Elsevier, vol. 28(5), pages 2090-2099, September.

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