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On the Pervasiveness of Home Market Effects

Author

Listed:
  • Keith Head

    (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia [Canada])

  • Thierry Mayer

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • John Ries

    (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia [Canada])

Abstract

Paul Krugman's model of trade predicts that the country with the relatively large number of consumers is the net exporter and hosts a disproportionate share of firms in the increasing returns sector. He terms these results ‘home market effects'. This paper analyses three additional models featuring increasing returns, firm mobility, and trade costs to assess the robustness of home market effects to alternative modelling assumptions. We find strikingly similar results for two of the models that relax assumptions about the nature of demand, competition and trade costs. However, a model that links varieties to nations rather than firms can generate opposite results.

Suggested Citation

  • Keith Head & Thierry Mayer & John Ries, 2002. "On the Pervasiveness of Home Market Effects," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00267444, HAL.
    • Handle: RePEc:hal:cesptp:hal-00267444
    DOI: 10.1111/1468-0335.00289
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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