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Intra-National Regional Heterogeneity in International Trade

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  • Kyoko Hirose

    ()
    (Faculty of Economics, Kyushu Sangyo University)

  • Yushi Yoshida

    ()
    (Faculty of Economics, Kyushu Sangyo University)

Abstract

We present a two-country model with explicit incorporation of two regions in the home country and one region in a foreign country. Each region consists of two types of workers: skilled workers, freely mobile across domestic regions, are required to set up a firm, whereas unskilled workers are constrained to their own regions. Trade costs accrue both intra-nationally and internationally. International trade costs are assumed to be different among regions. Our model produces a region-based gravity equation and generates heterogeneity among regional exports in terms of responses with respect to economic size. We also find a home-market effect at the regional level. Moreover, we are able to show the relative magnitude of the home-market effect among home regions, in terms of a change in the export share. The magnitude of the home-market effect is larger in a region further away from the foreign country. We empirically test our theoretical hypothesis with an application to the export dataset of Japanese regions. Our empirical results provide strong evidence in support of a region-based home-market effect but weak evidence for a relative home-market effect.

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File URL: http://www.ip.kyusan-u.ac.jp/keizai-kiyo/dp42.pdf
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Bibliographic Info

Paper provided by Kyushu Sangyo University, Faculty of Economics in its series Discussion Papers with number 42.

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Length: 40 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:kyu:dpaper:42

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Keywords: Home-market effect; International trade; Regional exports; Regional heterogeneity; Trade cost.;

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  1. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
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  13. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  14. Krugman, Paul & Elizondo, Raul Livas, 1996. "Trade policy and the Third World metropolis," Journal of Development Economics, Elsevier, vol. 49(1), pages 137-150, April.
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