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Discussion Paper Details

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Title: On the Pervasiveness of Home Market Effects

Author(s): Keith Head, Thierry Mayer and John Ries

Publication Date: July 2002

Keyword(s): home market effect, increasing returns and spatial competition

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Head, K, Mayer, T and Ries, J. 2002. 'On the Pervasiveness of Home Market Effects'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3454