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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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    References listed on IDEAS

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    Cited by:

    1. 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.
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    3. Valentina Lapo, 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.
    4. Valentina Lapo, 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.
    5. Zhihao Yu, 2000. "Market Integration and Industrial Structure: Home Market Effects Revisited," Econometric Society World Congress 2000 Contributed Papers 0033, Econometric Society.

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    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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