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Home Market and Traditional Effects on Comparative Advantage in a Gravity Approach

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  • Dieter Schumacher

Abstract

Policy makers in "small" countries facing trade liberalisation have become concerned with the potential loss of manufacturing employment and output to "large" economies in the presence of economies of scale in production and international transport costs. This paper offers a methodology to estimate the "home market" effect for numerous industries, after accounting for transport costs and traditional comparative advantage effects. The empirical results suggest significant home-market effects in many manufacturing industries which may be capital intensive or labour intensive.

Suggested Citation

  • Dieter Schumacher, 2003. "Home Market and Traditional Effects on Comparative Advantage in a Gravity Approach," Discussion Papers of DIW Berlin 344, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp344
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.40366.de/dp344.pdf
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    References listed on IDEAS

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    1. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    3. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-153, February.
    4. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Winter, Etti Maria & Frohberg, Klaus, 2005. "Properties of Flexible Functional Forms for Modeling Bilateral Export Supply and Import Demand in Multi-Country Agri-Food Models," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24471, European Association of Agricultural Economists.
    2. Tanrattanaphong, Borworn & Hu, Baiding & Gan, Christopher, 2020. "The impacts of value chain upgrading on the export of processed food," Food Policy, Elsevier, vol. 93(C).

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    More about this item

    Keywords

    Home-market effect; comparative advantage; bilateral trade; factor endowment; gravity model;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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