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Trade Liberalization, Competition and Growth

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  • Omar Licandro
  • Antonio Navas Ruiz

Abstract

Increasing evidence support the claim 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. Under Cournot competition, trade is pro-competitive. Since firms undertake cost reducing innovations, the increase in production induced by a more competitive market push firms to innovate more. Consequently, a reduction on trade barriers enhances growth by reducing domestic firm's market power.

Suggested Citation

  • Omar Licandro & Antonio Navas Ruiz, 2010. "Trade Liberalization, Competition and Growth," UFAE and IAE Working Papers 806.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:806.10
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Armando Garcia Pires, 2012. "International trade and competitiveness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(3), pages 727-763, August.
    2. Teteryatnikova, Mariya, 2008. "R&D in the network of international trade: Multilateral versus regional trade agreements," WTO Staff Working Papers ERSD-2009-03, World Trade Organization (WTO), Economic Research and Statistics Division.
    3. Navas Antonio & Licandro Omar, 2011. "Trade Liberalization, Competition and Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-28, May.
    4. Gerda Dewit & Dermot Leahy, 2016. "Strategic R&D Commitment and the Gains from Trade," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1129-1148, November.
    5. repec:wsr:wpaper:y:2013:i:127 is not listed on IDEAS
    6. 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.
    7. Chih-Hai Yang, 2018. "Exports and innovation: the role of heterogeneity in exports," Empirical Economics, Springer, vol. 55(3), pages 1065-1087, November.
    8. 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).
    9. 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.
    10. Ana M. Fernandes & Caroline Paunov, 2013. "Does trade stimulate product quality upgrading?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(4), pages 1232-1264, November.
    11. Teteryatnikova, Mariya, 2018. "R&D in trade networks: The role of asymmetry," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 307-350.
    12. Navas, Antonio, 2015. "Trade liberalisation and innovation under sector heterogeneity," Regional Science and Urban Economics, Elsevier, vol. 50(C), pages 42-62.
    13. Svetlana B. Avdasheva & Dina V. Tsytsulina, 2014. "The Effects Of Competition Policy: Merger Approval, Entry Barrier Removal, Antitrust Enforcement Compared," HSE Working papers WP BRP 34/FE/2014, National Research University Higher School of Economics.
    14. Stracca, Livio, 2013. "The rise of China and India: blessing or curse for the advanced countries?," Working Paper Series 1620, European Central Bank.
    15. Steven Bond‐Smith, 2022. "Discretely innovating: The effect of limited market contestability on innovation and growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(3), pages 301-327, July.
    16. Rudy Colacicco, 2015. "Ten Years Of General Oligopolistic Equilibrium: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 965-992, December.
    17. Cai, Meng & Cui, Riming & Li, Dan, 2023. "Trade with innovation benefits: A re-appraisal using micro data from China," Journal of Asian Economics, Elsevier, vol. 89(C).
    18. Giammario Impullitti & Omar Licandro, 2018. "Trade, Firm Selection and Innovation: The Competition Channel," Economic Journal, Royal Economic Society, vol. 128(608), pages 189-229, February.
    19. Aldaba, Rafaelita M., 2014. "The Philippine Manufacturing Industry Roadmap: Agenda for New Industrial Policy, High Productivity Jobs, and Inclusive Growth," Discussion Papers DP 2014-32, Philippine Institute for Development Studies.
    20. Giuseppe Caivano & Nicola D. Coniglio, 2016. "Long-Run Drivers of Current Account Imbalances in the EU: the Role of Trade Openness," SERIES 03-2016, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised May 2016.
    21. 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).
    22. Teteryatnikova, Mariya, 2018. "R&D in trade networks: The role of asymmetry," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 307-350.
    23. 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).
    24. Vidanes, Mary Joyce N., 2017. "Impact of Trade Liberalization on Research and Development (R&D) Expenditures in the Philippines," Journal of Economics, Management & Agricultural Development, Journal of Economics, Management & Agricultural Development (JEMAD), vol. 3(1), June.
    25. Boikos, Spyridon & Bucci, Alberto & Stengos, Thanasis, 2022. "Leisure and innovation in horizontal R&D-based growth," Economic Modelling, Elsevier, vol. 107(C).

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    More about this item

    Keywords

    Trade Openness; Growth; Competition;
    All these keywords.

    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, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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