IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Testing the ‘home market effect’ in a multi-country world

  • BEHRENS, Kristian
  • LAMORGESE, Andrea R.
  • OTTAVIANO, Gianmarco I.P.
  • TABUCHI, Takatoshi

We extend Krugman's (1980) two-country two-sector model to a setup with arbitrary numbers of countries and sectors. The extended model predicts an adequately defined "home market effect" only after controlling for cross-country differential accessibility through a theory-based linear filter. We bring that prediction to data by running a battery of non-parametric sign- and rank-tests that are closely related to those used in factor proportions theory. When applied to production and trade data on a cross-section of OECD and non-OECD countries, we find support for the presence of "home market effects" in a broad number of industries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2005055.

in new window

Date of creation: 00 Sep 2005
Date of revision:
Handle: RePEc:cor:louvco:2005055
Contact details of provider: Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)
Phone: 32(10)474321
Fax: +32 10474304
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  2. Marius BRÜLHART & Federico TRIONFETTI, 2001. "A Test of Trade Theories when Expenditure is Home Biased," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 01.11, Université de Lausanne, Faculté des HEC, DEEP.
  3. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  4. Stephen Redding & Anthony J. Venables, 2001. "Economic Geography and International Inequality," International Trade 0103003, EconWPA.
  5. Head, Keith & Mayer, Thierry & Ries, John, 2002. "On the Pervasiveness of Home Market Effects," Economica, London School of Economics and Political Science, vol. 69(275), pages 371-90, August.
  6. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
  7. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  8. Ginsburgh, Victor & Papageorgiou, Yorgo & Thisse, Jacques-Francois, 1985. "On existence and stability of spatial equilibria and steady-states," Regional Science and Urban Economics, Elsevier, vol. 15(2), pages 149-158, June.
  9. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  10. Federico Trionfetti, 2001. "Using home-biased demand to test trade theories," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(3), pages 404-426, September.
  11. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  12. 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.
  13. Robert C. Feenstra & Gordon H. Hanson, 2004. "Intermediaries in Entrepot Trade: Hong Kong Re-Exports of Chinese Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 3-35, 03.
  14. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December.
  15. Gordon H. Hanson & Chong Xiang, 2002. "The Home Market Effect and Bilateral Trade Patterns," NBER Working Papers 9076, National Bureau of Economic Research, Inc.
  16. Amiti, Mary, 1998. "Inter-industry trade in manufactures: Does country size matter?," Journal of International Economics, Elsevier, vol. 44(2), pages 231-255, April.
  17. Elhanan Helpman, 1998. "Explaining the structure of foreign trade: Where do we stand?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(4), pages 573-589, December.
  18. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," Harvard Institute of Economic Research Working Papers 1849, Harvard - Institute of Economic Research.
  19. Davis, Donald R. & Weinstein, David E., 1999. "Economic geography and regional production structure: An empirical investigation," European Economic Review, Elsevier, vol. 43(2), pages 379-407, February.
  20. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  21. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March.
  22. Donald R. Davis & David E. Weinstein, 1996. "Does Economic Geography Matter for International Specialization?," NBER Working Papers 5706, National Bureau of Economic Research, Inc.
  23. Gordon H. Hanson, 1998. "Market Potential, Increasing Returns, and Geographic Concentration," NBER Working Papers 6429, National Bureau of Economic Research, Inc.
  24. Keith Head & Thierry Mayer, 2004. "The Empirics of Agglomeration and Trade," Sciences Po publications info:hdl:2441/10191, Sciences Po.
  25. Patrizio Pagano & Fabiano Schivardi, 2001. "Firm Size Distribution and Growth," Temi di discussione (Economic working papers) 394, Bank of Italy, Economic Research and International Relations Area.
  26. Behrens, Kristian & Lamorgese, Andrea & Ottaviano, Gianmarco & Tabuchi, Takatoshi, 2004. "Testing the Home Market Effect in a Multi-Country World: The Theory," CEPR Discussion Papers 4468, C.E.P.R. Discussion Papers.
  27. Yong-Seok Choi & Pravin Krishna, 2004. "The Factor Content of Bilateral Trade: An Empirical Test," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 887-914, August.
  28. Helpman, Elhanan, 1984. "The Factor Content of Foreign Trade," Economic Journal, Royal Economic Society, vol. 94(373), pages 84-94, March.
  29. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2005055. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.