An inverted-U relationship between product market competition and growth in an extended Romerian model

Alberto Bucci (alberto.bucci@unimi.it)

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: The influence of product market competition on growth is reconsidered by developing an extension of the basic Romerian model of horizontal product innovation. We find that the relationship between competition and growth is inverse-U shaped, provided that the non accumulated factor input (e. g. labour) is employed in each economic activity. We explain this result by the interplay between two effects. For low values of product market competition, the positive resource allocation effect (the effect that an increase of competition has on the sectoral distribution of labour) outweigh s the negative profit incentive effect (the effect that an increase of competition has on firms' incentive to innovate). When prod uct market competition is intense, the resource allocation and pr ofit incentive effects are both negative and reinforce each other in inducing a negative correlation between competition and growth

Keywords: Horizontal Differentiation; Product Market Competition; Technological Change; Endogenous Growth (search for similar items in EconPapers)
JEL-codes: D43 L16 O31 O41 (search for similar items in EconPapers)
Date: 2004-01-01
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: An Inverted-U Relationship between Product Market Competition and Growth in an Extended Romerian Model (2005)
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