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Geographical Advantage: Home Market Effect in a Multi-Region World

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  • Matsuyama, Kiminori

Abstract

This paper proposes a theoretical framework, which allows us to study the effects of geographical factors on the distribution of industries across many regions. The geographical feature of each region is summarized by a proximity matrix, whose elements measure the closeness between every pair of regions and depend on the parameters representing the transport and other costs of using a variety of trade routes. A change in these costs of trade affects the distribution of industries by amplifying the geographical advantages and disadvantages of regions. Through a series of examples, we demonstrate how this framework can be used not only to examine the effects of an improvement in transport infrastructure, but also to address some problems from economic history, regional economic integration, and the north-south division, and discuss some geopolitical issues.

Suggested Citation

  • Matsuyama, Kiminori, 2017. "Geographical Advantage: Home Market Effect in a Multi-Region World," CEPR Discussion Papers 12352, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12352
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    3. Stef Proost & Jacques-François Thisse, 2019. "What Can Be Learned from Spatial Economics?," Journal of Economic Literature, American Economic Association, vol. 57(3), pages 575-643, September.
    4. Osawa, Minoru & Akamatsu, Takashi, 2020. "Equilibrium refinement for a model of non-monocentric internal structures of cities: A potential game approach," Journal of Economic Theory, Elsevier, vol. 187(C).
    5. Minoru Osawa & Jos'e M. Gaspar, 2020. "Production externalities and dispersion process in a multi-region economy," Papers 2001.05095, arXiv.org, revised May 2021.
    6. Carl Gaigné & Jacques-François Thisse, 2013. "New Economic Geography and the City," Working Papers SMART 13-02, INRAE UMR SMART.
    7. Li, Chunying & Zhang, Jinning & Lyu, Yanwei, 2022. "Does the opening of China railway express promote urban total factor productivity? New evidence based on SDID and SDDD model," Socio-Economic Planning Sciences, Elsevier, vol. 80(C).
    8. Dorothee Hillrichs, 2023. "The global geography of income and export patterns," LIDAM Discussion Papers IRES 2023001, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    9. Satoru Kumagai & Toshitaka Gokan & Kenmei Tsubota & Ikumo Isono & Kazunobu Hayakawa, 2021. "Economic Impacts of the US–China Trade War on the Asian Economy: An Applied Analysis of IDE-GSM," Journal of Asian Economic Integration, , vol. 3(2), pages 127-143, September.
    10. Takashi Akamatsu & Tomoya Mori & Minoru Osawa & Yuki Takayama, 2019. "Multimodal agglomeration in economic geography," Papers 1912.05113, arXiv.org, revised Apr 2023.
    11. Kiminori Matsuyama, 2019. "Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade," Econometrica, Econometric Society, vol. 87(2), pages 497-528, March.
    12. Jinghan Chen & Wen Zhou & Hongtao Yang & Zhuofei Wu, 2021. "“Grouping” or “Ride One’s Coattails”?—How Developing Countries along the Belt and Road Satisfy Themselves," Energies, MDPI, vol. 14(12), pages 1-22, June.
    13. Bunyada Laoprapassorn, 2022. "Entry and Spatial Competition of Intermediaries: Evidence from Thailand's Rice Market," PIER Discussion Papers 170, Puey Ungphakorn Institute for Economic Research.
    14. Tianbo Wu & Bin Zhang & Yukun Cao & Pingjun Sun, 2020. "Impact of Multi-Dimensional and Dynamic Distance on China’s Exports of Wooden Forest Products to Countries along the “Belt and Road”," Sustainability, MDPI, vol. 12(8), pages 1-12, April.
    15. Jordan J. Norris, 2021. "The Home Market Effects in a Home-Biased Geography," Working Papers 20210072, New York University Abu Dhabi, Department of Social Science, revised Sep 2021.
    16. Osawa, Minoru & Akamatsu, Takashi, 2019. "Emergence of Urban Landscapes: Equilibrium Selection in a Model of Internal Structure of the Cities," MPRA Paper 92395, University Library of Munich, Germany.

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    More about this item

    Keywords

    Monopolistic competition; A multi-region model of costly trade in differentiated goods; Home market effect; Regional economic integration; Uneven development; Convergence versus divergence; Geographical advantages and disadvantages; Proximity matrix; Trade routes;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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