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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
    DOI: 10.1111/j.0008-4085.2005.00279.x
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    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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