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A Decomposition of the Home-Market Effect

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  • Toru Kikuchi

    ()
    (Graduate School of Economics, Kobe University)

  • Ngo Van Long

    ()
    (Department of Economics, McGill University)

Abstract

Although the home-market effect has become one of the most important concepts in both trade theory and the new economic geography, it lacks a compelling graphical representation. The purpose of this note is to offer such a representation. We will decompose the homemarket effect into two steps: a short-run response to population shift, creating entry-stimulating excess profits (in the short run) for firms of the country that experiences a population gain, and a further round of entries into the monopolistic sector of the expanding country induced by exits in the foreign industry.

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File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2010/1002.pdf
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Bibliographic Info

Paper provided by Graduate School of Economics, Kobe University in its series Discussion Papers with number 1002.

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Length: 9pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:koe:wpaper:1002

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Web page: http://www.econ.kobe-u.ac.jp
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Keywords: Monopolistic Competition; Home-Market Effect; Entry-Exit Process;

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  1. Brakman,Steven & Garretsen,Harry & van Marrewijk,Charles, 2009. "The New Introduction to Geographical Economics," Cambridge Books, Cambridge University Press, number 9780521698030, October.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 409-436, May.
  4. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
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