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Home Market Effect, regulation costs and heterogeneous firms

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  • Toshihiro Okubo

    ()
    (Graduate Institute of International Studies, Geneva (HEI))

  • Vincent Rebeyrol

    ()
    (Centre d'Economie de la Sorbonne)

Abstract

This paper studies how market-specific entry sunk costs (regulation costs) affect the Home Market Effect (HME) with firm heterogeneity in marginal costs. our model is based on the Dixit-Stiglitz monopolistic competition model with firm heterogeneity plus regulation costs difference. We find that a regulation costs gap works as dispersion force by inducing a market potential gap, which reduces the HME and could cause the reverse HME or the anti-HME. The HME first rises and then fall in terms of trade openness, whereas the HME rises in terms of regulation costs gap coordination by technical barriers to trade (TBT) agreements. Firm heterogeneity dampens the dispersion force by the regulation costs difference and thus works as an agglomeration force. Firm heterogeneity causes a perfectspatial sorting, in which a large country attracts only high productivity firms, and vice versa.

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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number bla06056.

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Length: 23 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:mse:wpsorb:bla06056

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Keywords: Home market effect; firm heterogeneity; regulation costs; technical barriers to trade.;

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  1. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2008. "Spatial wage disparities: Sorting matters!," Journal of Urban Economics, Elsevier, vol. 63(2), pages 723-742, March.
  2. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2003. "Falling Trade Costs, Heterogeneous Firms and Industry Dynamics," CEP Discussion Papers dp0585, Centre for Economic Performance, LSE.
  3. Keith Head & John Ries, 2003. "Heterogeneity and the FDI versus Export Decision of Japanese Manufacturers," NBER Working Papers 10052, National Bureau of Economic Research, Inc.
  4. Baldwin, Richard & Robert-Nicoud, Frédéric, 2006. "Trade and Growth with Heterogenous Firms," CEPR Discussion Papers 5563, C.E.P.R. Discussion Papers.
  5. Donald R. Davis & David E. Weinstein, 1996. "Does Economic Geography Matter for International Specialization?," Harvard Institute of Economic Research Working Papers 1773, Harvard - Institute of Economic Research.
  6. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography, and Comparative Advantage: An Empirical Assessment," NBER Working Papers 6787, National Bureau of Economic Research, Inc.
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Cited by:
  1. Forslid, Rikard & Okubo, Toshihiro, 2010. "On the Development Strategy of Countries of Intermediate size - An Analysis of Heterogenous Fims in a Multiregion Framework," Research Papers in Economics 2010:28, Stockholm University, Department of Economics.
  2. Rikard Forslid & Toshihiro Okubo, 2011. "On the development strategy of countries of intermediate size - An analysis of heterogeneous firms in a multi-region framework," Keio/Kyoto Joint Global COE Discussion Paper Series 2011-029, Keio/Kyoto Joint Global COE Program.
  3. Eero Lehto, 2011. "On regional specialization of high- and low-tech industries," ERSA conference papers ersa11p832, European Regional Science Association.

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