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The More We Die, The More We Sell? A Simple Test of the Home-Market Effect


  • D. Donaldson
  • A. Costinot,
  • Margaret Kyle

    (CERNA i3 - Centre d'économie industrielle i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique)

  • H. Williams,


The home-market effect, first hypothesized by Linder (1961) and later formalized by Krugman (1980), is the idea that countries with larger demand for some products at home tend to have larger sales of the same products abroad. In this paper, we develop a simple test of the home-market effect using detailed drug sales data from the global pharmaceutical industry. The core of our empirical strategy is the observation that a country’s exogenous demographic composition can be used as a predictor of the diseases that its inhabitants are most likely to die from and, in turn, the drugs that they are most likely to demand. We find that the correlation between predicted home demand and sales abroad is positive and greater than the correlation between predicted home demand and purchases from abroad. In short, countries tend to be net sellers of the drugs that they demand the most, as predicted by Linder (1961) and Krugman (1980).
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Suggested Citation

  • D. Donaldson & A. Costinot, & Margaret Kyle & H. Williams,, 2016. "The More We Die, The More We Sell? A Simple Test of the Home-Market Effect," Working Papers hal-01448517, HAL.
  • Handle: RePEc:hal:wpaper:hal-01448517
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    References listed on IDEAS

    1. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, January.
    2. Natalia Ramondo & Andrés Rodríguez-Clare, 2013. "Trade, Multinational Production, and the Gains from Openness," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 273-322.
    3. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
    4. Behrens, Kristian & Lamorgese, Andrea R. & Ottaviano, Gianmarco I.P. & Tabuchi, Takatoshi, 2009. "Beyond the home market effect: Market size and specialization in a multi-country world," Journal of International Economics, Elsevier, vol. 79(2), pages 259-265, November.
    5. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, vol. 50(5), pages 1243-1268, September.
    6. Erik Lundbäck & Johan Torstensson, 1998. "Demand, comparative advantage and economic geography in international trade: Evidence from the OECD," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(2), pages 230-249, June.
    7. Kiminori Matsuyama, 2015. "The Home Market Effect and Patterns of Trade Between Rich and Poor Countries," Discussion Papers 1519, Centre for Macroeconomics (CFM).
    8. Rolf Weder, 2003. "Comparative home-market advantage: An empirical analysis of British and American exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(2), pages 220-247, June.
    9. repec:oup:restud:v:84:y:2017:i:4:p:1551-1582. is not listed on IDEAS
    10. Jonathan I. Dingel, 2017. "The Determinants of Quality Specialization," Review of Economic Studies, Oxford University Press, vol. 84(4), pages 1551-1582.
    11. Federico Trionfetti, 2001. "Using home-biased demand to test trade theories," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(3), pages 404-426, September.
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    1. repec:anr:reveco:v:9:y:2017:p:21-58 is not listed on IDEAS
    2. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    3. repec:bla:kyklos:v:70:y:2017:i:3:p:425-455 is not listed on IDEAS
    4. Pamina Koenig, 2017. "Notes on Sigwatch's NGO campaign database," PSE Working Papers halshs-01671758, HAL.
    5. Sophie Hatte & Pamina Koenig, 2017. "The Geography of NGO Activism against Multinational Corporations," PSE Working Papers halshs-01518148, HAL.

    More about this item


    Home-Market Effect;

    JEL classification:

    • F1 - International Economics - - Trade


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