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Trade costs and the Home Market Effect

Author Info

  • Crozet, Matthieu
  • Trionfetti, Federico

Abstract

Most of the theoretical and empirical studies on the Home Market Effect (HME) assume the existence of an "outside good" that absorbs all trade imbalances and equalizes wages. We study the consequences on the HME of removing this assumption. The HME is attenuated and, more interestingly, it becomes non-linear. The non-linearity implies that the HME is more important for very large and very small countries than for medium size countries. The empirical investigation conducted on a database comprising 25 industries, 25 countries, and 7Â years confirms the presence of the HME and of its non-linear shape.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 76 (2008)
Issue (Month): 2 (December)
Pages: 309-321

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Handle: RePEc:eee:inecon:v:76:y:2008:i:2:p:309-321
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

Keywords: International trade Test of trade theories Economic geography Home Market Effect F1 R12;

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Find related papers by JEL classification:
  • F10 - International Economics - - Trade - - - General
  • 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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