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Should Small Countries Fear Deindustrialization?

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  • Ai-Ting Goh
  • Tomasz Kamil Michalski

Abstract

Will small countries deindustrialize when opening up to trade with large countries? Donald Davis (1998 ) shows that for the home market effect to lead to deindustrialization of small countries, trade costs for homogeneous goods must be sufficiently smaller than trade costs in differentiated goods, a condition which is not supported by empirical evidence. We show that if differentiated goods production uses tradable inputs small countries can become deindustrialized when trading with a sufficiently large country and if trade costs are low. Copyright � 2010 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 18 (2010)
Issue (Month): 4 (09)
Pages: 607-617

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Handle: RePEc:bla:reviec:v:18:y:2010:i:4:p:607-617

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