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

Author

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

    (CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

  • H. Williams,

Abstract

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

  • A. Costinot, & D. Donaldson, & Margaret Kyle & H. Williams,, 2016. "The More We Die, The More We Sell? A Simple Test of the Home-Market Effect," Working Papers hal-01448519, HAL.
    • Handle: RePEc:hal:wpaper:hal-01448519
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    JEL classification:

    • F1 - International Economics - - Trade

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