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International trade and competitiveness

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  • Armando Garcia Pires
Abstract
We analyze the role of international market size differences in determining the investment in process R&D (and thus firms’ competitiveness) in a trade model with oligopolistic market structure, non-homothetic production technology and costly trade. We show that the R&D effort is higher (or even disproportionately so) for firms in the larger market, which causes endogenous asymmetries across countries. As a result, firms in the larger market have higher competitiveness, which increases their market shares in international markets. Furthermore, and contrary to what is predicted by Krugman (Am Econ Rev 70:950–959, 1980 ) “home market effect”, in equilibrium the larger country does not need to host a disproportionately higher share of the world’s industry than of the world’s demand. Despite this, the larger country can still continue to run a trade surplus in the oligopolistic sector, since it hosts firms with higher competitiveness than firms in the smaller country. Copyright Springer-Verlag 2012

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  • Armando Garcia Pires, 2012. "International trade and competitiveness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(3), pages 727-763, August.
    • Handle: RePEc:spr:joecth:v:50:y:2012:i:3:p:727-763
    DOI: 10.1007/s00199-010-0586-2
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    Cited by:

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    3. Diana Barros, Aurora A.C. Teixeira, 2021. "The technology balance of payments and international competitiveness: a panel data analysis of southern European countries, 2000-2017," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 18(1), pages 105-136, June.
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    5. José-María Da-Rocha & Eduardo-Luis Giménez & Francisco-Xavier Lores, 2013. "Self-fulfilling crises with default and devaluation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(3), pages 499-535, August.
    6. Chia Chiun Ko & Paul Frijters & Gigi Foster, 2018. "A Tale of Cyclones, Exports and Surplus Forgone in Australia's Protected Banana Industry," The Economic Record, The Economic Society of Australia, vol. 94(306), pages 276-300, September.

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    More about this item

    Keywords

    Endogenous asymmetric firms; Competitiveness; R&D investment; International trade; Home market effect; Oligopoly; F12; L13; O31;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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