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Discussion Paper Details

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Title: Quality Assurance and the Home Market Effect

Author(s): Ai Ting Goh and Tomasz Michalski

Publication Date: June 2008

Keyword(s): home market effect, intra-industry trade and quality assurance

Programme Area(s): International Trade and Regional Economics

Abstract: The home market effect is considered as a distinguishing feature of models of trade with increasing returns to scale in production and imperfect competition. However, some empirical studies found the existence of home market effect even in constant returns to scale industries. In this paper we build a model of intra-industry trade based upon quality assurance and show the existence of the home market effect without increasing returns in the production technology. This throws into question the rationale of empirical studies attempting to validate the increasing returns model of trade based upon testing the existence of the home market effect.

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Bibliographic Reference

Goh, A and Michalski, T. 2008. 'Quality Assurance and the Home Market Effect'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6880