IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/119993.html
   My bibliography  Save this paper

Market size, trade, and productivity reconsidered: poverty traps and the home market effect

Author

Listed:
  • Berliant, Marcus
  • Tabuchi, Takatoshi

Abstract

To investigate questions related to migration and trade, a model of regional or international development is created by altering Melitz and Ottaviano (2008) to include a labor market. The model is then applied to analyze poverty traps and the home market effect. We find that in the spatial economics context of migration but no trade, poverty can persist unless population in one region of many is pushed past a threshold. Then growth commences. In the context of trade but no migration, the home market effect holds for a range of parameters, similar to previous literature. However, unlike previous literature, we find that if populations in countries are highly asymmetric, the home market effect can be reversed.

Suggested Citation

  • Berliant, Marcus & Tabuchi, Takatoshi, 2024. "Market size, trade, and productivity reconsidered: poverty traps and the home market effect," MPRA Paper 119993, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:119993
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/119993/1/MPRA_paper_119993.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    3. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-François Thisse, 2021. "Agglomeration And Trade Revisited," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 3, pages 59-85, World Scientific Publishing Co. Pte. Ltd..
    4. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    5. Behrens, Kristian & Lamorgese, Andrea R. & Ottaviano, Gianmarco I.P. & Tabuchi, Takatoshi, 2009. "Beyond the home market effect: Market size and specialization in a multi-country world," Journal of International Economics, Elsevier, vol. 79(2), pages 259-265, November.
    6. Azariadis, Costas, 1996. "The Economics of Poverty Traps: Part One: Complete Markets," Journal of Economic Growth, Springer, vol. 1(4), pages 449-496, December.
    7. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
    8. Demidova, Svetlana, 2017. "Trade policies, firm heterogeneity, and variable markups," Journal of International Economics, Elsevier, vol. 108(C), pages 260-273.
    9. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
    10. Behrens, Kristian & Lamorgese, Andrea R. & Ottaviano, Gianmarco I.P. & Tabuchi, Takatoshi, 2009. "Beyond the home market effect: Market size and specialization in a multi-country world," Journal of International Economics, Elsevier, vol. 79(2), pages 259-265, November.
    11. Hege Medin, 2017. "The reverse home-market effect in exports: a cross-country study of the extensive margin of exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(2), pages 301-325, May.
    12. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. José M. Gaspar, 2018. "A prospective review on New Economic Geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(2), pages 237-272, September.
    2. Garcia Pires, Armando J., 2013. "Home market effects with endogenous costs of production," Journal of Urban Economics, Elsevier, vol. 74(C), pages 47-58.
    3. Behrens, Kristian & Robert-Nicoud, Frédéric, 2015. "Agglomeration Theory with Heterogeneous Agents," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 171-245, Elsevier.
    4. Ziran Ding, 2022. "Firm heterogeneity, variable markups, and multinational production: A review from trade policy perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1311-1357, December.
    5. Nocco, Antonella & Ottaviano, Gianmarco I.P. & Salto, Matteo, 2019. "Geography, competition, and optimal multilateral trade policy," Journal of International Economics, Elsevier, vol. 120(C), pages 145-161.
    6. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.
    7. Gabriel Felbermayr & Benjamin Jung, 2018. "Market size and TFP in the Melitz model," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 869-891, September.
    8. Etro, Federico, 2017. "Research in economics and monopolistic competition," Research in Economics, Elsevier, vol. 71(4), pages 645-649.
    9. Erhardt, Katharina, 2017. "On home market effects and firm heterogeneity," European Economic Review, Elsevier, vol. 98(C), pages 316-340.
    10. Carsten Eckel & Florian Unger, 2023. "Credit Constraints, Endogenous Innovations, And Price Setting In International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1715-1747, November.
    11. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    12. Carballo, Jeronimo & Ottaviano, Gianmarco I.P. & Volpe Martincus, Christian, 2018. "The buyer margins of firms' exports," Journal of International Economics, Elsevier, vol. 112(C), pages 33-49.
    13. Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Suedekum, Jens, 2017. "Spatial frictions," Journal of Urban Economics, Elsevier, vol. 97(C), pages 40-70.
    14. Raphael A. Auer, 2013. "Product Heterogeneity, Cross-Country Taste Differences, and the Consumption Home Bias," Working Papers 13.01, Swiss National Bank, Study Center Gerzensee.
    15. Marin, Dalia & Verdier, Thierry, 2014. "Corporate hierarchies and international trade: Theory and evidence," Journal of International Economics, Elsevier, vol. 94(2), pages 295-310.
    16. Mrázová, Monika & Neary, J. Peter, 2020. "IO for exports(s)," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    17. Jian Wang & Junqian Xu, 2015. "Home market effect, spatial wages disparity: an empirical reinvestigation of China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(2), pages 313-333, December.
    18. Francesco Di Comite & Jacques-François Thisse & Hylke Vandenbussche, 2011. "Verti-zontal differentiation in monopolistic competition," Working Paper Research 216, National Bank of Belgium.
    19. Carlo Perroni & Davide Suverato, 2023. "Skills scarcity and export intensity," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(2), pages 719-757, May.
    20. Ralph Ossa, 2011. "A "New Trade" Theory of GATT/WTO Negotiations," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 122-152.

    More about this item

    Keywords

    Monopolistic competition; Poverty trap; Home market effect; Labor market clearing;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:119993. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.