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International competition, growth and welfare

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  • Tang, Paul J. G.
  • Walde, Klaus

Abstract

Opening up to trade exposes firms to new competitors. If foreign and domestic firms produce close substitutes, their interaction in the product market forces prices below the monopolistic level. This increased competition induces a shift of demand from monopolistic to oligopolistic varieties and thereby reduces incentives to develop new varieties. This reduces innovation activities and thus the growth rate. Competition always reduces welfare for both domestic and foreign consumers. If the scale and the intensity of competition are large, trade will reduce the welfare level even below the autarky level. Temporary, declining tariffs on all imports and permanent tariffs on oligopolistic varieties are instruments to improve welfare.
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  • Tang, Paul J. G. & Walde, Klaus, 2001. "International competition, growth and welfare," European Economic Review, Elsevier, vol. 45(8), pages 1439-1459, August.
    • Handle: RePEc:eee:eecrev:v:45:y:2001:i:8:p:1439-1459
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    Cited by:

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    2. Lutz Arnold & Christian Bauer, 2008. "Some Second Thoughts on Monopolistic Distortions and Endogenous Growth," Working Papers 041, Bavarian Graduate Program in Economics (BGPE).
    3. Willem Molle, 2002. "Globalization, Regionalism and Labour Markets: Should We Recast the Foundations of the EU Regime in Matters of Regional (Rural and Urban) Development?," Regional Studies, Taylor & Francis Journals, vol. 36(2), pages 161-172.
    4. Lutz Arnold, 2007. "A generalized multi-country endogenous growth model," International Economics and Economic Policy, Springer, vol. 4(1), pages 61-100, April.
    5. Giammario Impullitti, 2010. "International Competition And U.S. R&D Subsidies: A Quantitative Welfare Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1127-1158, November.
    6. Giammario Impullitti, 2007. "International Schumpeterian Competition and Optimal R&D subsidies," Economics Working Papers ECO2007/55, European University Institute.
    7. Christian Bauer, 2008. "Trade, Productivity and semi-endogenous Growth," Working Papers 056, Bavarian Graduate Program in Economics (BGPE).
    8. Klaus Wälde & Christina Wood, 2004. "The empirics of trade and growth: where are the policy recommendations?," International Economics and Economic Policy, Springer, vol. 1(2), pages 275-292, January.
    9. Tapio Palokangas, 2008. "Competition and product cycles with non-diversifiable risk," Journal of Economics, Springer, vol. 94(1), pages 1-30, June.
    10. Tapio Palokangas, 2011. "Optimal patent length and breadth in an economy with creative destruction and non-diversifiable risk," Journal of Economics, Springer, vol. 102(1), pages 1-27, January.
    11. Arnold, Lutz G. & Bauer, Christian J., 2007. "Three Theorems on Growth and Competition," University of Regensburg Working Papers in Business, Economics and Management Information Systems 423, University of Regensburg, Department of Economics.
    12. Arnold, Lutz G., 2003. "Growth in stages," Structural Change and Economic Dynamics, Elsevier, vol. 14(1), pages 55-74, March.
    13. Tapio Palokangas, 2009. "Optimal Patent Length and Patent Width for an Economy with Creative Destruction and Non-Diversifiable Risk," DEGIT Conference Papers c014_024, DEGIT, Dynamics, Economic Growth, and International Trade.

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