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Home Market Effect versus Multinationals

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  • Toulemonde, Eric

    () (University of Namur)

Abstract

We develop a model with two asymmetric countries. Firms choose the number and the location of plants that they operate. The production of each firm increases when trade costs fall. The fall also induces multinationals to repatriate their production into a single country, which is likely to be the large country because of the home market effect. The net effect on total output is favorable in the large country and ambiguous in the small country. We extend the model to endogenize country sizes and we show that in an equilibrium with multinationals only, a rent can be taxed by governments.

Suggested Citation

  • Toulemonde, Eric, 2007. "Home Market Effect versus Multinationals," IZA Discussion Papers 2829, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2829
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    References listed on IDEAS

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    1. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, vol. 52(2), pages 209-234, December.
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    4. Head, Keith & Mayer, Thierry & Ries, John, 2002. "On the Pervasiveness of Home Market Effects," Economica, London School of Economics and Political Science, vol. 69(275), pages 371-390, August.
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    7. BEHRENS, Kristian & PICARD, Pierre M., 2005. "Tax competition, location, and horizontal foreign direct investment," CORE Discussion Papers 2005091, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Cited by:

    1. Kenmei Tsubota, "undated". "Location and organization choice of firms," KIER Working Papers 679, Kyoto University, Institute of Economic Research.

    More about this item

    Keywords

    globalization; economic geography; trade costs; multinational firms; home market effect;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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