Is Free Trade Good for Endogenous Growth?: Monopolistic and Duopolistic Competition

Younggwan Goo and Seong-Hoon Lee
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Younggwan Goo: Samsung Research Institute of Finance
Seong-Hoon Lee: Center for Economic Studies, Bureau of the Census

Korean Economic Review, 2003, vol. 19, 191-209

Abstract: This paper examines the role of market power and market structure in determining the endogenous economic growth. Contrary to free trade under monopolistic competition, free trade under duopolistic competition by opening up the economy increases competition in intermediate input markets through the higher elasticity of substitution between inputs after trade. this reduces the incentive to invest in new technology development and thus free trade would be detrimental to endogenous growth in such an economy. The results of this paper suggest that in an intra-industry trade, policy makers when making decisions on opening up markets need to consider market structures after trade and thereby combine open markets with interventionist industrial policies.

Keywords: Endogenous growth; Monopolistic Competition; and Duopolisitic Competition (search for similar items in EconPapers)
JEL-codes: D43 D50 F12 L13 O32 O40 (search for similar items in EconPapers)
Date: 2003
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