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The home market, trade, and industrial structure

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  • Donald R. Davis

Abstract

Does national market size matter for industrial structure? This has been suggested by theoretical work on "home market" effects, as in Krugman (1980, 1995). In this paper, I show that what previously was regarded as an assumption of convenience ? transport costs only for the differentiated goods ? matters a great deal. In a focal case in which differentiated and homogeneous goods have identical transport costs, the home market effect disappears. The paper discusses available evidence on the relative trade costs for differentiated and homogeneous goods. No compelling argument is found that market size will matter for industrial structure.

Suggested Citation

  • Donald R. Davis, 1997. "The home market, trade, and industrial structure," Staff Reports 35, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:35
    Note: For a published version of this report, see Donald R. Davis, "The Home Market, Trade, and Industrial Structure," American Economic Review 88, no. 5 (December 1998): 1264-76.
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    References listed on IDEAS

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    1. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-1125, December.
    2. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 857-880.
    3. 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.
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    5. Helpman, E., 1995. "The Size of Regions," Papers 14-95, Tel Aviv.
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    7. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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    10. Krugman, Paul, 1995. "Increasing returns, imperfect competition and the positive theory of international trade," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 24, pages 1243-1277, Elsevier.
    11. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September.
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    More about this item

    Keywords

    economic geography; home market; transport costs; industrial structure;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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