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On the Pervasiveness of Home Market Effects

Author

Listed:
  • Mayer, Thierry
  • Head, Keith
  • Ries, John
Abstract
Krugman?s (1980) model of trade predicts that the country with the relatively large number of consumers is the net exporter and hosts a disproportionate share of firms in the increasing returns sector. He terms these results 'home market effects'. This Paper analyzes three additional models featuring increasing returns, firm mobility, and trade costs to assess the robustness of home market effects to alternative modeling assumptions. We find strikingly similar results for two of the models that relax assumptions about the nature of demand, competition, and trade costs. A model that links varieties to nations rather than firms can, however, generate opposite results.

Suggested Citation

  • Mayer, Thierry & Head, Keith & Ries, John, 2002. "On the Pervasiveness of Home Market Effects," CEPR Discussion Papers 3454, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3454
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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Elhanan Helpman & Paul Krugman, 1987. "Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258087x, April.
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    13. ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, 1992. "Interpretations of the logit discrete choice models and the theory of product differentiation," LIDAM Reprints CORE 1017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    More about this item

    Keywords

    Spatial competition; Home market effect; Increasing returns;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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