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Should small countries fear deindustrialization ?

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  • Michalski, Thomasz

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  • Goh, Ai-Ting

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Abstract

Will small countries deindustrialize when opening up to trade with large countries? Davis(1998) shows that for the home market e¤ect to lead to deindustrialization of small countries, trade costs for homogenous goods must be su¢ ciently smaller than trade costs in di¤erentiated goods, a condition which is not supported by empirical evidence. We show that if di¤erentiated goods production uses tradeable inputs small countries can become deindustrialized when trading with a su¢ ciently large country and if trade costs are low.

Suggested Citation

  • Michalski, Thomasz & Goh, Ai-Ting, 2009. "Should small countries fear deindustrialization ?," Les Cahiers de Recherche 916, HEC Paris.
  • Handle: RePEc:ebg:heccah:0916
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    References listed on IDEAS

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    1. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-1276, December.
    2. Holmes, Thomas J. & Stevens, John J., 2005. "Does home market size matter for the pattern of trade?," Journal of International Economics, Elsevier, vol. 65(2), pages 489-505, March.
    3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    4. 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 371-390, August.
    5. Crozet, Matthieu & Trionfetti, Federico, 2008. "Trade costs and the Home Market Effect," Journal of International Economics, Elsevier, vol. 76(2), pages 309-321, December.
    6. Zhihao Yu, 2005. "Trade, market size, and industrial structure: revisiting the home-market effect," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 255-272, February.
    7. 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.
    8. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    9. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    10. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g8o4o0m0g is not listed on IDEAS
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    1. repec:bla:reviec:v:25:y:2017:i:1:p:76-97 is not listed on IDEAS

    More about this item

    Keywords

    home market e¤ect; deindustrialization; trade costs; economic geography; intermediate goods;

    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook
    • 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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