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Growth, Market Structure, and the Welfare Effects of Economic Integration

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  • Peretto, Pietro

Abstract

This paper discusses the role of economic integration in a model of endogenous growth where the size of the firm and the interactions between growth and the endogenous structure of the market play a crucial role. The focus is on the pure scale effects of integration and their welfare implications. The main result of the paper is that integration raises growth and welfare if it generates a market that is more competitive and where firms have access to a larger body of technological spillovers. Specifically, these conditions mean two things: (a) the number of domestic firms does not fall so much that in the integrated market there are fewer firms than in autarky; (b) R&D is characterized by spillovers so that one firms' are observable. The model, thus, provides practical guidelines for predicting the effects of integration by looking at how the larger extent of the market affects the organization of industry. Moreover, these conditions are likely to be met in reality, thus suggesting that economic integration is indeed beneficial.

Suggested Citation

  • Peretto, Pietro, 1996. "Growth, Market Structure, and the Welfare Effects of Economic Integration," Working Papers 96-12, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:96-12
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    References listed on IDEAS

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    1. Novshek, William & Sonnenschein, Hugo, 1987. "General Equilibrium with Free Entry: A Synthetic Approach to the Theory of Perfect Competition," Journal of Economic Literature, American Economic Association, vol. 25(3), pages 1281-1306, September.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    3. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    4. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    5. Backus, David K. & Kehoe, Patrick J. & Kehoe, Timothy J., 1992. "In search of scale effects in trade and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 377-409, December.
    6. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1120-1171, September.
    7. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    8. Kamien,Morton I. & Schwartz,Nancy L., 1982. "Market Structure and Innovation," Cambridge Books, Cambridge University Press, number 9780521293853, March.
    9. Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-293, June.
    10. Klevorick, Alvin K. & Levin, Richard C. & Nelson, Richard R. & Winter, Sidney G., 1995. "On the sources and significance of interindustry differences in technological opportunities," Research Policy, Elsevier, vol. 24(2), pages 185-205, March.
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    12. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-121, January.
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    Cited by:

    1. Nicola Cetorelli & Paolo Angelini, 1999. "Bank competition and regulatory reform: the case of the Italian banking industry," Working Paper Series WP-99-32, Federal Reserve Bank of Chicago.
    2. Baldwin, Richard E. & Forslid, Rikard, 1998. "Trade and growth Any unfinished business?," European Economic Review, Elsevier, vol. 42(3-5), pages 695-703, May.

    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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