Trade Liberalization, Competition and Growth

Abstract

The aim of this paper is to understand whether international trade ma enhance innovation and growth through an increase in competition. We de velop a two-country endogenous growth model, both countries producing th same set of goods, with rm speci c R&D and a continuum of oligopolisti sectors under Cournot competition. Since countries produce the same se of goods, trade openness makes markets more competitive, reducing price and raising the incentives to innovate. More general, a reduction on trad barriers enhances growth by reducing domestic rms market power. Keywords: Trade openess, competition and growth, R&D