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On the pervasiveness of home market effects

Abstract : Paul Krugman's 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 analyses three additional models featuring increasing returns, firm mobility, and trade costs to assess the robustness of home market effects to alternative modelling assumptions. We find strikingly similar results for two of the models that relax assumptions about the nature of demand, competition and trade costs. However, a model that links varieties to nations rather than firms can generate opposite results.
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Keith Head, Thierry Mayer, John Ries. On the pervasiveness of home market effects. Economica, Wiley, 2002, pp.371-390. ⟨hal-01017590⟩



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