In a simple one-sector endogenous growth model of imperfect competition, we show that the competitiveness-growth relationship can be mixed, crucially depending on the degree of the increasing returns to specialization. This ambiguity not only reconciles the theoretical prediction with the recent empirical evidence, but also provides a plausible explanation for the diversity in the competitiveness-growth relationship across countries.
KeywordsMonopoly PowerIncreasing Returns to SpecializationEconomic Growth
P. M. Romer, “Endogenous Technological Change,” Journal of Political Economy, Vol. 98, No. 5, 1990, pp. S71-S102. doi:10.1086/261725
P. Aghion and P. Howitt, “A Model of Growth through Creative Destruction,” Econometrica, Vol. 60, No. 2, 1992, pp. 323-351. doi:10.2307/2951599
P. Aghion and P. Howitt, “Endogenous Growth Theory,” MIT, Cambridge, 1998.
R. Blundell, R. Griffith and J. V. Reenen, “Dynamic Count Data Models of Technological Innovation,” Economic Journal, Vol. 105, No. 429, 1995, pp. 333-344. doi:10.2307/2235494
R. Blundell, R. Griffith and J. van Reenen, “Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms,” Review of Economic Studies, Vol. 66, No. 3, 1999, pp. 529-554. doi:10.1111/1467-937X.00097
S. Basu, “Procyclical Productivity: Increasing Returns or Cyclical Utilization?” Quarterly Journal of Economics, Vol. 111, No. 3, 1996, pp. 719-751. doi:10.2307/2946670
S. Nickell, “Competition and Corporate Performance,” Journal of Political Economy, Vol. 104, No. 4, 1996, pp. 724-746. doi:10.1086/262040
R. Disney, J. Haskel and Y. Heden, “Restructuring and Productivity Growth in UK Manufacturing,” Economic Journal, Vol. 113, No. 489, 2003, pp. 666-694. doi:10.1111/1468-0297.t01-1-00145
P. Aghion, R. Blundell, N. Bloom and R. Griffith, “Competition and Innovation: An Inverted-U Relationship,” Quarterly Journal of Economics, Vol. 120, No. 2, 2005, pp. 701-728. doi:10.1162/0033553053970214
P. Aghion and R. Griffith, “Competition and Growth: Reconciling Theory and Evidence,” Zeuthen Lecture Book Series, MIT, Cambridge and London, 2005.
P. Aghion, M. Dewatripont and P. Rey, “Competition, Financial Discipline and Growth,” Review of Economic Studies, Vol. 66, No. 4, 1999, pp. 825-852. doi:10.1111/1467-937X.00110
P. Aghion, C. Harris, P. Howitt and J. Vickers, “Competition and Growth with Step-by-Step Innovation,” Review of Economic Studies, Vol. 68, No. 3, 2001, pp. 467-492. doi:10.1111/1467-937X.00177
S. Ahn, “Competition, Innovation and Productivity Growth: A Review of Theory and Evidence,” OECD Economics Working Paper, No. 317, 2002.
A. Bucci, “An Inverted-U Relationship between Product Market Competition and Growth in an Extended Romerian Model,” Rivista di Politica Economica, Vol. 95, No. 5, 2005, pp. 177-206.
A. Minniti, “Product Market Competition, R&D Composition and Growth,” Economic Modelling, Vol. 27, No. 1, 2010, pp. 417-421. doi:10.1016/j.econmod.2009.10.008
P. M. Romer, “Growth Based on Increasing Returns Due to Specialization,” American Economic Review, Vol. 77, No. 2, 1987, pp. 56-62.
M. B. Devereux, A. C. Head and B. L. Lapham, “Government Spending and Welfare with Returns to Specialization,” Scandinavian Journal of Economics, Vol. 102, No. 4, 2000, pp. 547-561. doi:10.1111/1467-9442.00214
A. K. Dixit and J. E. Stiglitz, “Monopolistic Competition and Optimum Product Diversity,” American Economic Review, Vol. 67, No. 3, 1977, pp. 297-308.
M. B. Devereux, A. C. Head and B. L. Lapham, “Monopolistic Competition, Increasing Returns, and the Effects of Government Spending,” Journal of Money, Credit, and Banking, Vol. 28, No. 2, 1996, pp. 233-254. doi:10.2307/2078025
J. P. Bénassy, “Monopolistic Competition, Increasing Returns to Specialization and Output Persistence,” Economics Letters, Vol. 52, No. 2, 1996, pp. 187-191. doi:10.1016/S0165-1765(96)00856-7
J. P. Bénassy, “Is There Always Too Little Research in Endogenous Growth with Expanding Product Variety?” European Economic Review, Vol. 42, No. 1, 1998, pp. 61-69. doi:10.1016/S0014-2921(97)00061-5
D. Bianco, “Competition and Growth in an Endogenous Growth Model with Expanding Product Variety without Scale Effects,” MPRA Paper, No. 9469, University Library of Munich, Munich, 2007.
B. Balassa, “Trade Liberalization among Industrial Countries: Objectives and Alternatives,” McGraw-Hill for Council on Foreign Relations, New York, 1967.
B. Balassa, “The Determinants of Intra-Industry Specialization in United States Trade,” Oxford Economic Papers, Vol. 38, No. 2, 1986, pp. 220-233.
W. J. Ethier, “National and International Returns to Scale in the Modern Theory of International Trade,” American Economic Review, Vol. 72, No. 3, 1982, pp. 389-405.
L. Rapping, “Learning and World War II Production Functions,” Review of Economics and Statistics, Vol. 47, No. 1, 1965, pp. 81-86. doi:10.2307/1924126
R. Sanchez and J. T. Mahoney, “Modularity, Flexibility, and Knowledge Management in Product and Organization Design,” Strategic Management Journal, Vol. 17, 1996, pp. 63-76.
R. N. Langlois, “Modularity in Technology and Organization,” Journal of Economic Behavior and Organization, Vol. 49, No. 1, 2002, pp. 19-37.
M. G. Jacobides, “Industry Change through Vertical Disintegration: How and Why Markets Emerged in Mortgage Banking,” Academy of Management Journal, Vol. 48, No. 3, 2005, pp. 465-498. doi:10.5465/AMJ.2005.17407912
S. Rebelo, “Long-Run Policy Analysis and Long-Run Growth,” Journal of Political Economy, Vol. 99, No. 3, 1991, pp. 500-521. doi:10.1086/261764
S. Basu and J. G. Fernald, “Returns to Scale in US Production: Estimates and Implications,” Journal of Political Economy, Vol. 105, No. 2, 1997, pp. 249-283. doi:10.1086/262073
M. B., Devereux, A. C. Head and B. L. Lapham, “Aggregate Fluctuations with Increasing Returns to Specialization and Scale,” Journal of Economic Dynamics and Control, Vol. 20, No. 4, 1996, pp. 627-656. doi:10.1016/0165-1889(95)00868-3
R. J. Caballero and R. K. Lyons, “External Effects in US Procyclical Productivity,” Journal of Monetary Economics, Vol. 29, No. 2, 1992, pp. 209-225. doi:10.1016/0304-3932(92)90013-R
A. Kraay and C. Raddatz, “Poverty Traps, Aid, and Growth,” Journal of Development Economics, Vol. 82, No. 2, 2007, pp. 315-347. doi:10.1016/j.jdeveco.2006.04.002
R. Christopoulou and P. Vermeulem, “Markups in the EURO Area and the US over the Period 1981-2004: A Comparison of 50 Sectors,” Empirical Economics, Vol. 42, No. 1, 2012, pp. 53-77. doi:10.1007/s00181-010-0430-3
J. H?j, M. Jimenez, M. Maher, G. Nicoletti and M. Wise, “Product Market Competition in the OECD Countries: Taking Stock and Moving Forward,” OECD Economics Working Paper, No. 575, 2007.
K. Sekkat, “Does Competition Improve Productivity in Developing Countries?” Journal of Economic Policy Reform, Vol. 12, No. 2, 2009, pp. 145-162. doi:10.1080/17487870902872946
P. Prapassornmanu, “The Effect of Exchange Rates on Firm’s Investment: The Evidence from Thailand’s Manufacturing Firms,” Faculty of Economics, Thammasat University, Bangkok, 2009.