IMPERFECT COMPETITION, CONCENTRATION AND GROWTH WITH FIRM-SPECIFIC RESEARCH-AND-DEVELOPMENT

The paper presents a model of growth based on innovation. High-tech fi rms cover the fixed cost of R and D out of operating profits and sell output in a market with imperfect competition. Innovation builds on an d contributes to firm-specific knowledge. Moreover, there are spillove rs among firms. Growth is higher in a more concentrated market provide d that market power of firms is not too high. Economic integration bet ween symmetric countries fosters growth, as profit margins decrease wi th market shares. Integration of production lines and research efforts by mergers or horizontal integration is conducive to growth.