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On home market effects and firm heterogeneity

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  • Erhardt, Katharina

Abstract

This paper reassesses the home market effect in the light of firm-level heterogeneity. Industries with high barriers to trade, less differentiated products and high productivity dispersion are more likely to concentrate in larger markets. These results differ partly from the predictions of models without selection into exporting. In the presence of economies of scale firms tend to locate in markets where export selection is less competitive. These predictions are confirmed in an empirical investigation based on 34 OECD countries and 118 sectors.

Suggested Citation

  • Erhardt, Katharina, 2017. "On home market effects and firm heterogeneity," European Economic Review, Elsevier, vol. 98(C), pages 316-340.
  • Handle: RePEc:eee:eecrev:v:98:y:2017:i:c:p:316-340
    DOI: 10.1016/j.euroecorev.2017.07.007
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    Cited by:

    1. Gabriel Felbermayr & Benjamin Jung, 2018. "Market size and TFP in the Melitz model," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 869-891, September.
    2. repec:gam:jsusta:v:9:y:2017:i:12:p:2180-:d:120400 is not listed on IDEAS

    More about this item

    Keywords

    Home market effect; Heterogeneous firms; Monopolistic competition; Economic geography;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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