Technology Advantage and Trade: Home Market Effects Revisited
AbstractAccording to conventional home market effects, free trade tends to shrink the market share for the smaller economy in the differentiated manufacturing goods, and in the extreme, leads to a complete hollowing out of the industry. In departing from the original Helpman-Krugman modeling assumptions behind the home market effects, we introduce technology differences between trading partners and prove that the home market effects will be offset and will even reverse if the small economy has better technology than the other country. We also prove that even with identical country size, the intra-industry trade addressed in the existing literature may not occur; it will occur only if the technology differential lies within a certain range that is positively affected by the level of transport cost.
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Bibliographic InfoPaper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 06-A011.
Length: 27 pages
Date of creation: Oct 2006
Date of revision:
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Web page: http://www.econ.sinica.edu.tw/index.php?foreLang=en
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Home market Effects; Country Size; Technology Differential;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
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