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Trade Liberalization, Competition and Growth

  • Licandro, Omar
  • Navas-Ruiz, Antonio

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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6500.

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Date of creation: Sep 2007
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Handle: RePEc:cpr:ceprdp:6500
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  29. Koeniger Winfried & Licandro Omar, 2006. "On the Use of Substitutability as a Measure of Competition," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-9, March.
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