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Intra-National Regional Heterogeneity in International Trade

  • Kyoko Hirose

    ()

    (Faculty of Economics, Kyushu Sangyo University)

  • Yushi Yoshida

    ()

    (Faculty of Economics, Kyushu Sangyo University)

We present a two-country model with explicit incorporation of two regions in the home country and one region in a foreign country. Each region consists of two types of workers: skilled workers, freely mobile across domestic regions, are required to set up a firm, whereas unskilled workers are constrained to their own regions. Trade costs accrue both intra-nationally and internationally. International trade costs are assumed to be different among regions. Our model produces a region-based gravity equation and generates heterogeneity among regional exports in terms of responses with respect to economic size. We also find a home-market effect at the regional level. Moreover, we are able to show the relative magnitude of the home-market effect among home regions, in terms of a change in the export share. The magnitude of the home-market effect is larger in a region further away from the foreign country. We empirically test our theoretical hypothesis with an application to the export dataset of Japanese regions. Our empirical results provide strong evidence in support of a region-based home-market effect but weak evidence for a relative home-market effect.

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File URL: http://www.ip.kyusan-u.ac.jp/keizai-kiyo/dp42.pdf
File Function: First version, 2010May
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Paper provided by Kyushu Sangyo University, Faculty of Economics in its series Discussion Papers with number 42.

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Length: 40 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:kyu:dpaper:42
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  1. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Regional Production Structure: An Empirical Investigation," Harvard Institute of Economic Research Working Papers 1802, Harvard - Institute of Economic Research.
  2. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
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  12. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  13. Zhihao Yu, 2005. "Trade, market size, and industrial structure: revisiting the home-market effect," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 255-272, February.
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