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The Home Market, Trade, and Industrial Structure

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Donald R. Davis

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Abstract

Does national market size matter for industrial structure? This has been suggested by theoretical work on home market' effects, as in Krugman (1980, 1995). In this paper, I show that what previously was regarded as an assumption of convenience - transport costs only for the differentiated goods - matters a great deal. In a focal case in which differentiated and homogeneous goods have identical transport costs, the home market effect disappears. The paper discusses available evidence on the relative trade costs for differentiated and homogenous goods. No compelling argument is found that market size will matter for industrial structure.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6076.

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Date of creation: Jun 1997
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Handle: RePEc:nbr:nberwo:6076

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Find related papers by JEL classification:
F1 - International Economics - - Trade
O1 - Economic Development, Technological Change, and Growth - - Economic Development

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  1. Krugman, Paul, 1995. "Increasing returns, imperfect competition and the positive theory of international trade," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 24, pages 1243-1277 Elsevier. [Downloadable!] (restricted)
  2. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September. [Downloadable!] (restricted)
  3. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December. [Downloadable!] (restricted)
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  4. Krugman, P. & Venables, A.J., 1995. "Globalization and the Inequality of Nations," Research Institute of Industrial Economics Working Papers 430, Research Institute of Industrial Economics (IFN).
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  5. 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. [Downloadable!] (restricted)
  6. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June. [Downloadable!] (restricted)
  7. Helpman, E., 1995. "The Size of Regions," Papers 14-95, Tel Aviv.
  8. Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
  9. Keith E. Maskus, 1991. "Comparing International Trade Data and Product and National Characteristics Data for the Analysis of Trade Models," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 17-60 National Bureau of Economic Research, Inc. [Downloadable!]
  10. repec:fth:michin:382 is not listed on IDEAS
  11. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November. [Downloadable!] (restricted)
  13. Krugman, Paul & Venables, Anthony J., 1990. "Integration and the Competitiveness of Peripheral Industry," CEPR Discussion Papers 363, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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