Home Market and Traditional Effects on Comparative Advantage in a Gravity Approach
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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- 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.
- 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.
- Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
- 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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