According to textbook theory there are at least three channels through which competition may affect micro and macro-economic performance. First, the presence of prices more in line with marginal costs leads to the exit of low-productivity firms from the market and to a more efficient allocation of available inputs to high-productivity ones (allocative efficiency). Secondly, lower profits induce firms to organize work more efficiently (productive efficiency). Finally, changes in the level of market rivalry affect firms¿ incentive to perform R&D activity and, thus, play a role in technical progress (dynamic efficiency). Micro-econometric (firm/industry-level) evidence is overall in favor of the hypothesis that the relationship between competition, innovation and growth might be positive (or, at most, inverse U-shaped). However, when we compare this evidence with the macro-economic one, we see that the reverse is true (Griffith-Harrison, 2004; Schiantarelli, 2005): more competition drives down both R&D effort and growth. In the light of this new macro-evidence, our first purpose is to build a model able to replicate some of the existing stylized facts on competition, R&D and the determinants of growth.
If competition can be considered a factor of growth at the national level, its role at the international level (across-countries competition on trade flows) is even more remarkable, in view of the actual processes of globalization. In this regard the trend we are observing is rather clear: most of the tariff-barriers previously existing at the world/regional/bilateral trade level are nowadays being replaced by non-tariff barriers, much more numerous of the tariff ones. The list of the non-tariff obstacles to international trade is huge and varies by country and sector. However, the rules of origin are actually the most important among them. To a positive and normative analysis of these ¿new¿ obstacles to trade we intend devote part of this project.