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Home-Biased Demand and International Specialisation : A Test of Trade Theories

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  • Marius BRÜLHART
  • Federico TRIONFETTI

Abstract

We develop and apply a discriminating criterion to distinguish the two principal paradigms of international trade theory: constant-returns perfectly competitive models on the one hand, and increasing-returns monopolistically competitive models on the other. Our criterion rests on the existence of home-biased demand. It predicts a positive relationship between countries' relative output and their relative home bias in increasing-returns sectors, and no relationship in constant-returns sectors. In implementing the test on data for OECD countries we find that industries accounting for up to two thirds of manufacturing output conform to the increasing-returns monopolistically competitive model.

Suggested Citation

  • Marius BRÜLHART & Federico TRIONFETTI, 1999. "Home-Biased Demand and International Specialisation : A Test of Trade Theories," Cahiers de Recherches Economiques du Département d'économie 9918, Université de Lausanne, Faculté des HEC, Département d’économie.
  • Handle: RePEc:lau:crdeep:9918
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    Cited by:

    1. Marius BRÜLHART, 2000. "Evolving Geographical Specialisation of European Manufacturing Industries," Cahiers de Recherches Economiques du Département d'économie 00.08, Université de Lausanne, Faculté des HEC, Département d’économie.
    2. Lapo, Valentina, 2013. "The economy of Russia in multipolar world," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 30(2), pages 26-48.
    3. Lapo Valentina, 2003. "Spatial distribution of investment in Russia: the effect of agglomeration," EERC Working Paper Series 01-087e, EERC Research Network, Russia and CIS.
    4. Zhihao Yu, 2000. "Market Integration and Industrial Structure: Home Market Effects Revisited," Econometric Society World Congress 2000 Contributed Papers 0033, Econometric Society.
    5. Lapo, Valentina, 2010. "Spatial concentration of production and investor expectations: the analysis of branch attraction of investments into regions," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 18(2), pages 3-19.

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    More about this item

    Keywords

    international specialisation; home-market effect; increasing returns;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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