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Should small countries fear deindustrialization ?

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  • Michalski, Thomasz

    ()

  • Goh, Ai-Ting

    ()

Abstract

Will small countries deindustrialize when opening up to trade with large countries? Davis(1998) shows that for the home market e¤ect to lead to deindustrialization of small countries, trade costs for homogenous goods must be su¢ ciently smaller than trade costs in di¤erentiated goods, a condition which is not supported by empirical evidence. We show that if di¤erentiated goods production uses tradeable inputs small countries can become deindustrialized when trading with a su¢ ciently large country and if trade costs are low.

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Bibliographic Info

Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 916.

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Length: 24 pages
Date of creation: 19 Mar 2009
Date of revision:
Handle: RePEc:ebg:heccah:0916

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Keywords: home market e¤ect; deindustrialization; trade costs; economic geography; intermediate goods;

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