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Market Access, Economic Geography and Comparative Advantage: An Empirical Assessment

  • Donald R. Davis
  • David E. Weinstein

The increasing returns revolution in trade is incomplete in an important respect - there exists no compelling empirical demonstration of the role of increasing returns in determining production and trade structure. One reason is that trade patterns of the canonical increasing returns models are a consequence simply of specialization, which all theories permit. Krugman (1980) shows that increasing returns models with costs of trade - economic geography - do allow a simple test: home market effects of demand on production. Davis and Weinstein (1996) reject the simple Krugman (1980) model on OECD data. Here we pair the model with a richer geography structure and find evidence of the importance of increasing returns, in combination with comparative advantage, in affecting OECD manufacturing production structure. The results underscore the importance of market access in implementing models of economic geography.

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Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1850.

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Date of creation: 1998
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Handle: RePEc:fth:harver:1850
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  26. Davis, Donald R, 1997. "Critical Evidence on Comparative Advantage? North-North Trade in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1051-60, October.
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