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The Home Market, Trade, and Industrial Structure

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  • Davis, Donald R

Abstract

Does national market size matter for industrial structure? This has been suggested by theoretical work on 'home market' effects. In the present paper, the author shows 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. This paper discusses available evidence on the relative trade costs for differentiated and homogeneous goods. No compelling argument is found that market size will matter for industrial structure. Copyright 1998 by American Economic Association.

Suggested Citation

  • Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-1276, December.
  • Handle: RePEc:aea:aecrev:v:88:y:1998:i:5:p:1264-76
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    References listed on IDEAS

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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.
    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.
    3. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-1125, December.
    4. John F. Helliwell, 1996. "Do National Borders Matter for Quebec's Trade?," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 507-522, August.
    5. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    6. Paul Wonnacott & Ronald J. Wonnacott, 1982. "Free Trade between the United States and Canada: Fifteen Years Later," Canadian Public Policy, University of Toronto Press, vol. 8(s1), pages 412-427, October.
    7. 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.
    8. repec:hhs:iuiwop:430 is not listed on IDEAS
    9. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    10. Helpman, E., 1995. "The Size of Regions," Papers 14-95, Tel Aviv.
    11. 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.
    12. 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.
    13. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters,in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
    14. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    15. Krugman, Paul & Venables, Anthony J, 1990. "Integration and the Competitiveness of Peripheral Industry," CEPR Discussion Papers 363, C.E.P.R. Discussion Papers.
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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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