EFIGE IS A PROJECT DESIGNED TO HELP IDENTIFY THE INTERNAL POLICIES NEEDED TO IMPROVE EUROPEfS EXTERNAL COMPETITIVENESS Klaus Desmet and Stephen L. Parente Bigger is better: market size, demand elasticity and innovation EFIGE working paper 06 April 2009 Funded under the Socio-economic Sciences and Humanities Programme of the Seventh Framework Programme of the European Union. LEGAL NOTICE: The research leading to these results has received funding from the European Community's Seventh Framework Programme (FP7/2007-2013) under grant agreement n 225551. The views expressed in this publication are the sole responsibility of the authors and do not necessarily reflect the views of the European Commission. The EFIGE project is coordinated by Bruegel and involves the following partner organisations: Universidad Carlos III de Madrid, Centre for Economic Policy Research (CEPR), Institute of Economics Hungarian Academy of Sciences (IEHAS), Institut fr Angewandte Wirtschaftsforschung (IAW), Centro Studi Luca D'Agliano (LdfA), Unitcredit Group, Centre dfetudes Prospectives et dfinformations Internationales (CEPII). The EFIGE partners also work together with the following associate partners: Banque de France, Banco de Espaa, Banca dfitalia, Deutsche Bundesbank, National Bank of Belgium, OECD Economics Department.
d v H v F v F d HH
Equilibrium Technology 16 15 14 13 Elasticity (Population 150) 1+(1+gamma)phi Elasticity (Population 250) 12 11 10 9 8 7 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 Technology Progress (gamma)
Trade Liberalization and Technological Progress 6% 5% Technological Progress (gamma) 4% 3% 2% 1% 0% 1.25 1.20 1.15 1.10 1.05 1.00 Trade Openness (tau)