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Most Downloaded Articles
- Comparing Wealth Effects: The Stock Market versus the Housing Market by Case, Karl E./ Quigley, John M. and Shiller, Robert J.
- The Effects of the Great Recession on Central Bank Doctrine and Practice by Bernanke, Ben S.
- Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium by Heylen, Freddy and Van de Kerckhove, Renaat
- Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks by Carvalho, Carlos
Trade Liberalization, Competition and Growth
1Universidad de Alicante and Universidad Autonoma de Madrid, (email)
2IAE - CSIC (Consejo Superior de Investigaciones Científicas), (email)
Citation Information: The B.E. Journal of Macroeconomics. Volume 11, Issue 1, ISSN (Online) 1935-1690, DOI: 10.2202/1935-1690.2087, May 2011
- Published Online:
Increasing evidence supports 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. Since firms undertake cost reducing innovations, the increase in production pushes firms to innovate more. Compared to other oligopolistic competition models, we find a larger pro-competitive effect of trade on innovation under this framework, and this effect is increasing the larger the elasticity of substitution between products.