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Trade Costs and the Home Market Effect

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  • Matthieu Crozet
  • Federico Trionfetti

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 indus- tries, 25 countries, and 7 years con¯rms the presence of the HME and of its non-linear shape.
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Suggested Citation

  • Matthieu Crozet & Federico Trionfetti, 2007. "Trade Costs and the Home Market Effect," Working Papers 2007-05, CEPII research center.
    • Handle: RePEc:cii:cepidt:2007-05
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    References listed on IDEAS

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    More about this item

    Keywords

    International trade; economic geography; Models; Home market effect; Market access; International trade theory;
    All these keywords.

    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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