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The Home Market, Trade, and Industrial Structure

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  • Donald R. Davis

Abstract

Does national market size matter for industrial structure? This has been suggested by theoretical work on home market' effects, as in Krugman (1980, 1995). In this paper, I show that what previously was regarded as an assumption of convenience - transport costs only for the differentiated goods - matters a great deal. In a focal case in which differentiated and homogeneous goods have identical transport costs, the home market effect disappears. The paper discusses available evidence on the relative trade costs for differentiated and homogenous goods. No compelling argument is found that market size will matter for industrial structure.

Suggested Citation

  • Donald R. Davis, 1997. "The Home Market, Trade, and Industrial Structure," NBER Working Papers 6076, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6076
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    References listed on IDEAS

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    JEL classification:

    • F1 - International Economics - - Trade
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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