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Should small countries fear deindustrialization?

Author

Listed:
  • Tomasz Michalski

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Ai-Ting Goh

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

Will small countries deindustrialize when opening up to trade with large countries? Davis (1998) shows that for the home market effect to lead to deindustrialization of small countries, trade costs for homogenous goods must be sufficiently smaller than trade costs in differentiated goods, a condition which is not supported by empirical evidence. We show that if differentiated goods production uses tradeable inputs small countries can become deindustrialized when trading with a sufficiently large

Suggested Citation

  • Tomasz Michalski & Ai-Ting Goh, 2009. "Should small countries fear deindustrialization?," Working Papers hal-00489273, HAL.
    • Handle: RePEc:hal:wpaper:hal-00489273
    as

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    References listed on IDEAS

    as
    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. repec:bla:econom:v:69:y:2002:i:275:p:371-90 is not listed on IDEAS
    3. Crozet, Matthieu & Trionfetti, Federico, 2008. "Trade costs and the Home Market Effect," Journal of International Economics, Elsevier, vol. 76(2), pages 309-321, December.
    4. Ai‐Ting Goh & Tomasz Kamil Michalski, 2010. "Should Small Countries Fear Deindustrialization?," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 607-617, September.
    5. Keith Head & Thierry Mayer & John Ries, 2000. "On the Pervasiveness of Home Market Effects," Econometric Society World Congress 2000 Contributed Papers 0862, Econometric Society.
    6. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-1276, December.
    7. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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    9. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
    10. Holmes, Thomas J. & Stevens, John J., 2005. "Does home market size matter for the pattern of trade?," Journal of International Economics, Elsevier, vol. 65(2), pages 489-505, March.
    11. repec:hal:wpspec:info:hdl:2441/c8dmi8nm4pdjkuc9g8o4o0m0g is not listed on IDEAS
    12. Zhihao Yu, 2005. "Trade, market size, and industrial structure: revisiting the home‐market effect," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(1), pages 255-272, February.
    13. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
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    Cited by:

    1. Ai‐Ting Goh & Tomasz Kamil Michalski, 2010. "Should Small Countries Fear Deindustrialization?," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 607-617, September.
    2. 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 e¤ect; deindustrialization; trade costs; economic geography; intermediate goods;
    All these keywords.

    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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