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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 two-country endogenous growth model, both countries producing the same set of goods, with firm speciffic R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same setof 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 FEDEA in its series Working Papers with number 2008-03.

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Date of creation: Jan 2008
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Handle: RePEc:fda:fdaddt:2008-03
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