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Quality Assurance and the Home Market Effect

Author

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  • Goh, Ai Ting
  • Michalski, Tomasz K.

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.

Suggested Citation

  • Goh, Ai Ting & Michalski, Tomasz K., 2008. "Quality Assurance and the Home Market Effect," CEPR Discussion Papers 6880, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6880
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    References listed on IDEAS

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    Cited by:

    1. Martín Tobal, 2017. "Regulatory Entry Barriers, Rent Shifting and the Home Market Effect," Review of International Economics, Wiley Blackwell, vol. 25(1), pages 76-97, February.

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    More about this item

    Keywords

    Home market effect; Intra-industry trade; Quality assurance;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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