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Trade costs and the Home Market Effect

  • Matthieu Crozet

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - CEPII, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Federico Trionfetti

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - École des Hautes Études en Sciences Sociales (EHESS) - CNRS : UMR6579)

Most of the theoretical and empirical studies on the Home Market Effect (HME) assume the existence of an \outside good" that absorbs all trade imbalances and equalizes wages. We study the consequences on the HME of removing this assumption. The HME is attenuated and, more interestingly, it becomes non-linear. The non-linearity implies that the HME is more important for very large and very small countries than for medium size countries. The empirical investigation conducted on a database comprising 25 indus- tries, 25 countries, and 7 years con¯rms the presence of the HME and of its non-linear shape.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00497693.

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Date of creation: Dec 2008
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Publication status: Published, Journal of International Economics, 2008, 76, 2, 309-321
Handle: RePEc:hal:cesptp:hal-00497693
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00497693
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