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A decomposition of the home-market effect

Author

Listed:
  • Toru Kikuchi

    () (Kobe University)

  • Ngo van Long

    () (McGill University)

Abstract

Although the home-market effect has become one of the most important concepts in both trade theory and the new economic geography, it lacks a compelling graphical representation. The purpose of this note is to offer such a representation. We will decompose the home-market effect into two steps: a short-run response to population shift, creating entry-stimulating excess profits (in the short run) for firms of the country that experiences a population gain, and a further round of entries into the monopolistic sector of the expanding country induced by exits in the foreign industry.

Suggested Citation

  • Toru Kikuchi & Ngo van Long, 2010. "A decomposition of the home-market effect," Economics Bulletin, AccessEcon, vol. 30(4), pages 2759-2768.
  • Handle: RePEc:ebl:ecbull:eb-10-00302
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    References listed on IDEAS

    as
    1. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 409-436.
    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. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    4. J. Peter Neary, 2009. "Putting the "New" into New Trade Theory: Paul Krugman's Nobel Memorial Prize in Economics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 217-250, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Monopolistic Competition; Home-Market Effect; Entry-Exit Process;

    JEL classification:

    • F1 - International Economics - - Trade

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