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Home Market Effect versus Multinationals

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  • Toulemonde, Eric

    ()
    (University of Namur)

Abstract

We develop a model with two asymmetric countries. Firms choose the number and the location of plants that they operate. The production of each firm increases when trade costs fall. The fall also induces multinationals to repatriate their production into a single country, which is likely to be the large country because of the home market effect. The net effect on total output is favorable in the large country and ambiguous in the small country. We extend the model to endogenize country sizes and we show that in an equilibrium with multinationals only, a rent can be taxed by governments.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2829.

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Length: 29 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2829

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Keywords: globalization; economic geography; trade costs; multinational firms; home market effect;

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  1. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, Elsevier, vol. 52(2), pages 209-234, December.
  2. PICARD, Pierre M. & THISSE, Jacques-François & TOULEMONDE, Eric, . "Economic geography and the distribution of profits," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1716, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, Elsevier, vol. 48(1), pages 1-23, February.
  4. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, American Economic Association, vol. 87(4), pages 520-44, September.
  5. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, Elsevier, vol. 52(2), pages 331-357, December.
  6. OTTAVIANO, Gianmarco & THISSE, Jacques-François, . "Agglomeration and economic geography," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1725, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  8. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 909, C.E.P.R. Discussion Papers.
  9. Kristian Behrens & Pierre M. Picard, 2006. "Tax competition, location, and horizontal foreign direct investment," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2006-08, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  10. Kind, H.J. & Knarvik, K.H.M. & Schjelderup, G., 1999. "Competing for Capital in a "Lumpy" World," Papers, Norwegian School of Economics and Business Administration- 7/99, Norwegian School of Economics and Business Administration-.
  11. Keith Head & Thierry Mayer & John Ries, 2000. "On the Pervasiveness of Home Market Effects," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0862, Econometric Society.
  12. Raybaudi Massilia, M., 1995. "Economic geography and multinational enterprise," Discussion Paper Series In Economics And Econometrics, Economics Division, School of Social Sciences, University of Southampton 9520, Economics Division, School of Social Sciences, University of Southampton.
  13. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 3(3), pages 229-240, July.
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Cited by:
  1. Kenmei Tsubota, 2009. "Location and organization choice of firms," KIER Working Papers, Kyoto University, Institute of Economic Research 679, Kyoto University, Institute of Economic Research.

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