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Trade liberalization, competition and growth

  • Omar Licandro


  • Antonio Navas-Ruiz


The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a twocountry 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 Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we076536.

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Date of creation: Sep 2007
Date of revision:
Handle: RePEc:cte:werepe:we076536
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  26. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 531-555.
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