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On the Pervasiveness of Home Market Effects

  • Head, Keith
  • Mayer, Thierry
  • Ries, John

Krugman’s (1980) model of trade predicts that the country with the relatively large number of consumers is the net exporter and hosts a disproportionate share of firms in the increasing returns sector. He terms these results 'home market effects'. This Paper analyzes three additional models featuring increasing returns, firm mobility, and trade costs to assess the robustness of home market effects to alternative modeling assumptions. We find strikingly similar results for two of the models that relax assumptions about the nature of demand, competition, and trade costs. A model that links varieties to nations rather than firms can, however, generate opposite results.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3454.

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Date of creation: Jul 2002
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Handle: RePEc:cpr:ceprdp:3454
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  1. Ottaviano, Gianmarco & Thisse, Jacques-François, 1998. "Agglomeration and Trade Revisited," CEPR Discussion Papers 1903, C.E.P.R. Discussion Papers.
  2. Donald R. Davis, 1997. "The Home Market, Trade, and Industrial Structure," NBER Working Papers 6076, National Bureau of Economic Research, Inc.
  3. Feenstra, Robert & Markusen, James R. & Rose, Andrew K, 1998. "Understanding the Home Market Effect and the Gravity Equation: The Role of Differentiating Goods," CEPR Discussion Papers 2035, C.E.P.R. Discussion Papers.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  5. Markusen, James R. & Venables, Anthony J., 1988. "Trade policy with increasing returns and imperfect competition : Contradictory results from competing assumptions," Journal of International Economics, Elsevier, vol. 24(3-4), pages 299-316, May.
  6. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Reginal Production Structure: An Empirical Investigation," NBER Working Papers 6093, National Bureau of Economic Research, Inc.
  7. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography and Comparative Advantage: An Empirical Assessment," Harvard Institute of Economic Research Working Papers 1850, Harvard - Institute of Economic Research.
  8. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
  9. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc.
  10. Ottaviano, G.I.P. & Thisse, J.-F., 1999. "Monopolistic Competition, Multiproduct Firms and Optimum Product Diversity," Economics Working Papers eco99/31, European University Institute.
  11. Elhanan Helpman & Paul Krugman, 1987. "Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258087x, June.
  12. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers 380, Queen's University, Department of Economics.
  13. 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.
  14. 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.
  15. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
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