Quality Assurance and the Home Market Effect

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Quality Assurance and the Home Market Effect

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Goh, Ai Ting
Michalski, Tomasz

Abstract

The home market effect is considered as a distinguishing feature of models of trade with increasing returns to scale in production and imperfect competition. However, some empirical studies found the existence of home market effect even in constant returns to scale industries. In this paper we build a model of intra-industry trade based upon quality assurance and show the existence of the home market effect without increasing returns in the production technology. This throws into question the rationale of empirical studies attempting to validate the increasing returns model of trade based upon testing the existence of the home market effect.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6880.

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Date of creation: Jun 2008
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Handle: RePEc:cpr:ceprdp:6880

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Find related papers by JEL classification:
F1 - International Economics - - Trade
R3 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-06-27 (All new papers)

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