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Home Market and Traditional Effects on Comparative Advantage in a Gravity Approach

  • Dieter Schumacher

Policy makers in "small" countries facing trade liberalisation have become concerned with the potential loss of manufacturing employment and output to "large" economies in the presence of economies of scale in production and international transport costs. This paper offers a methodology to estimate the "home market" effect for numerous industries, after accounting for transport costs and traditional comparative advantage effects. The empirical results suggest significant home-market effects in many manufacturing industries which may be capital intensive or labour intensive.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.40366.de/dp344.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 344.

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Length: 23 p.
Date of creation: 2003
Date of revision:
Handle: RePEc:diw:diwwpp:dp344
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  1. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  2. 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.
  3. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-53, February.
  4. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
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