Discussion Paper Details

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Title: Trade Liberalization, Competition and Growth

Author(s): Omar Licandro and Antonio Navas-Ruiz

Publication Date: September 2007

Keyword(s): Competition and growth, R&D and Trade openness

Programme Area(s): Development Economics and International Macroeconomics

Abstract: 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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Bibliographic Reference

Licandro, O and Navas-Ruiz, A. 2007. 'Trade Liberalization, Competition and Growth'. London, Centre for Economic Policy Research.