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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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Suggested Citation

  • 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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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. Giammario Impullitti, 2007. "International Schumpeterian Competition and Optimal R&D subsidies," Economics Working Papers ECO2007/55, European University Institute.
    4. 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.
    5. Arnold, Lutz G., 2003. "Growth in stages," Structural Change and Economic Dynamics, Elsevier, vol. 14(1), pages 55-74, March.
    6. 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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