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The home market and the pattern of trade: round three

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Abstract

Does national market size matter for industrial structure? Round One (Krugman) answered in the affirmative: Home market effects matter. Round Two (Davis) refuted this, arguing that an assumption of convenience-transport costs only for the differentiated goods-conveniently obtained the result. In Round Three we relax another persistent assumption of convenience- two industry types differentiated only by the degree of scale economies-and find that market size reemerges as a relevant force in determining industrial structure.

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  • Thomas J. Holmes & John J. Stevens, 2002. "The home market and the pattern of trade: round three," Staff Report 304, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:304
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    1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    2. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    3. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-1276, December.
    4. Thomas J. Holmes & John J. Stevens, 2004. "Geographic concentration and establishment size: analysis in an alternative economic geography model," Journal of Economic Geography, Oxford University Press, vol. 4(3), pages 227-250, June.
    5. Amiti, Mary, 1998. "Inter-industry trade in manufactures: Does country size matter?," Journal of International Economics, Elsevier, vol. 44(2), pages 231-255, April.
    6. Thomas J. Holmes, 1999. "Scale of Local Production and City Size," American Economic Review, American Economic Association, vol. 89(2), pages 317-320, May.
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    1. Thomas J. Holmes & John J. Stevens, 2004. "Geographic concentration and establishment size: analysis in an alternative economic geography model," Journal of Economic Geography, Oxford University Press, vol. 4(3), pages 227-250, June.
    2. Gordon H. Hanson & Chong Xiang, 2004. "The Home-Market Effect and Bilateral Trade Patterns," American Economic Review, American Economic Association, vol. 94(4), pages 1108-1129, September.
    3. Gordon H. Hanson & Chong Xiang, 2009. "International Trade in Motion Picture Services," NBER Chapters, in: International Trade in Services and Intangibles in the Era of Globalization, pages 203-222, National Bureau of Economic Research, Inc.

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    Keywords

    Econometric models; International trade;

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