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Trade, market size, and industrial structure: revisiting the home-market effect

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  • Zhihao Yu

Abstract

This paper shows that the issues in the recent discussion over the `home-market effects' are more complicated than previously thought. It is shown that, in general, market size matters for industrial structure even when both the homogeneous and the differentiated goods face transport costs. The home-market effect for production structure can arise, disappear, or even reverse in sign. The analysis shall change a common perception about de-industrialization of (small) economies and may also have important implications for the empirical research strategies in this area.

Suggested Citation

  • Zhihao Yu, 2005. "Trade, market size, and industrial structure: revisiting the home-market effect," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 255-272, February.
  • Handle: RePEc:cje:issued:v:38:y:2005:i:1:p:255-272
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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    8. Conlin, Michael & Furusawa, Taiji, 2000. "Strategic Delegation and Delay in Negotiations over the Bargaining Agenda," Journal of Labor Economics, University of Chicago Press, vol. 18(1), pages 55-73, January.
    9. Tracy, Joseph S, 1986. "An Investigation into the Determinants of U.S. Strike Activity," American Economic Review, American Economic Association, vol. 76(3), pages 423-436, June.
    10. Joel Watson, 1998. "Alternating-Offer Bargaining with Two-Sided Incomplete Information," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 573-594.
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    Citations

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    Cited by:

    1. Hiroshi Goto & Keiya Minamimura, 2014. "Fertility, Regional Demographics, and Economic Integration," Discussion Papers 1405, Graduate School of Economics, Kobe University.
    2. Haiwen Zhou, 2014. "International Trade with Increasing Returns in the Transportation Sector," Frontiers of Economics in China, Higher Education Press, vol. 9(4), pages 606-633, December.
    3. Kyoko Hirose & Yushi Yoshida, 2010. "Intra-National Regional Heterogeneity in International Trade," Discussion Papers 42, Kyushu Sangyo University, Faculty of Economics.
    4. Yamamoto, Kazuhiro, 2008. "Location of industry, market size, and imperfect international capital mobility," Regional Science and Urban Economics, Elsevier, vol. 38(5), pages 518-532, September.
    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, pages 259-265.
    6. Kato, Hayato, 2015. "Lobbying and Tax Competition in an Agglomeration Economy: A Reverse Home Market Effect," CCES Discussion Paper Series 56, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    7. Giraldo, Iader & Jaramillo, Fernando, 2016. "Productivity, Demand and the Home Market Effect," DOCUMENTOS DE TRABAJO 014447, UNIVERSIDAD DEL ROSARIO.
    8. Garcia Pires, Armando J., 2013. "Home market effects with endogenous costs of production," Journal of Urban Economics, Elsevier, vol. 74(C), pages 47-58.
    9. Hiroshi Goto & Keiya Minamimura, 2015. "Geography and Demography: New Economic Geography with Endogenous Fertility," Discussion Paper Series DP2015-33, Research Institute for Economics & Business Administration, Kobe University.
    10. Huang, Yo-Yi & Huang, Deng-Shing, 2014. "Big vs. small under free trade: Market size and size distribution of firms," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 175-189.
    11. Pham, Cong S. & Lovely, Mary E. & Mitra, Devashish, 2014. "The home-market effect and bilateral trade patterns: A reexamination of the evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 120-137.
    12. Takatsuka, Hajime & Zeng, Dao-Zhi, 2012. "Trade liberalization and welfare: Differentiated-good versus homogeneous-good markets," Journal of the Japanese and International Economies, Elsevier, vol. 26(3), pages 308-325.
    13. Haiwen Zhou, 2007. "Increasing Returns, the Choice of Technology, and the Gains from Trade," Southern Economic Journal, Southern Economic Association, vol. 74(2), pages 581-600, October.
    14. Dao-Zhi Zeng & Toru Kikuchi, 2005. "The Home Market Effect and the Agricultural Sector," ERSA conference papers ersa05p135, European Regional Science Association.
    15. 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.
    16. Dao-Zhi Zeng & Toru Kikuchi, 2009. "Home Market Effect And Trade Costs," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 253-270.
    17. Barbero, Javier & Behrens, Kristian & Zofio, Jose L., 2015. "Industry location and wages: The role of market size and accessibility in trading networks," CEPR Discussion Papers 10411, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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