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The home market and the pattern of trade: round three

  • Thomas J. Holmes
  • John J. Stevens

Does national market size matter for industrial structure? Round One (Krugman) answered in the affirmative: Home market effects matter. Round Two (Davis) refuted this, arguing that an assumption of convenience--transport costs only for the differentiated goods--conveniently obtained the result. In Round Three we relax another persistent assumption of convenience--industry types differentiated only by the degree of scale economies--and find that market size reemerges as a relevant force in determining industrial structure.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2002-23.

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Date of creation: 2002
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Handle: RePEc:fip:fedgfe:2002-23
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  1. Thomas J. Holmes & John J. Stevens, 2002. "Geographic concentration and establishment size: analysis in an alternative economic geography model," Finance and Economics Discussion Series 2002-17, Board of Governors of the Federal Reserve System (U.S.).
  2. Donald R. Davis, 1997. "The home market, trade, and industrial structure," Staff Reports 35, Federal Reserve Bank of New York.
  3. Amiti, Mary, 1998. "Inter-industry trade in manufactures: Does country size matter?," Journal of International Economics, Elsevier, vol. 44(2), pages 231-255, April.
  4. Thomas J. Holmes, 1999. "Scale of Local Production and City Size," American Economic Review, American Economic Association, vol. 89(2), pages 317-320, May.
  5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  6. 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.
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