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The Home-Market Effect and Bilateral Trade Patterns

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Author Info
Gordon H. Hanson
Chong Xiang

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Abstract

We develop a monopolistic-competition model of trade with many industries to examine how home-market effects vary with industry characteristics. Industries with high transport costs and more differentiated products tend to be more concentrated in large countries than industries with low transport costs and less differentiated products. We test this prediction using a difference in-difference gravity specification that controls for import tariffs, importing-country remoteness, home bias in demand, and the tendency for large countries to export more of all goods. We find strong evidence of home-market effects whose intensity varies across industries in a manner consistent with theory.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 4 (September)
Pages: 1108-1129
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Handle: RePEc:aea:aecrev:v:94:y:2004:i:4:p:1108-1129

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Daniel Ortega & Francisco Rodríguez, 2005. "Trade Policy and Factor Prices: An Empirical Strategy," Wesleyan Economics Working Papers 2005-004, Wesleyan University, Department of Economics. [Downloadable!]
  2. Steven Brakman & Harry Garretsen & Marc Schramm, 2005. "Putting New Economic Geography to the Test: Free-ness of Trade and Agglomeration in the EU Regions," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  3. Brülhart, Marius & Trionfetti, Federico, 2005. "A Test of Trade Theories when Expenditure is Home Biased," CEPR Discussion Papers 5097, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Dao-Zhi Zeng & Toru Kikuchi, 2005. "The Home Market Effect and the Agricultural Sector," ERSA conference papers ersa05p135, European Regional Science Association. [Downloadable!]
  5. John Robst & Solomon Polachek & Yuan-Ching Chang, 2006. "Geographic Proximity, Trade and International Conflict/Cooperation," IZA Discussion Papers 1988, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Djankov, Simeon & Freund, Caroline & Pham, Cong S., 2006. "Trading on time," Policy Research Working Paper Series 3909, The World Bank. [Downloadable!]
  7. Redding, Stephen J & Sturm, Daniel M & Wolf, Nikolaus, 2007. "History and Industry Location: Evidence from German Airports," CEPR Discussion Papers 6345, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Jens Südekum, 2005. "Does the Home Market Effect Arise in a Three-Country Model?," Center for European, Governance and Economic Development Research (cege) Discussion Papers 42, Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
  9. Gabriel J. Felbermayr & Benjamin Jung, . "Sorting It Out: Technical Barriers to Trade and Industry Productivity," FIW Working Paper series 014, FIW. [Downloadable!]
  10. Yo Chul Choi & David Hummels & Chong Xiang, 2006. "Explaining Import Variety and Quality: The Role of the Income Distribution," NBER Working Papers 12531, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Russell Hillberry & David Hummels, 2005. "Trade Responses to Geographic Frictions: A Decomposition Using Micro-Data," NBER Working Papers 11339, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Head, Charles Keith & Mayer, Thierry, 2003. "The Empirics of Agglomeration and Trade," CEPR Discussion Papers 3985, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  13. Dieter Schumacher & Boriss Siliverstovs, 2006. "Home-Market and Factor-Endowment Effects in a Gravity Approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(2), pages 330-353, July. [Downloadable!] (restricted)
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