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Home Market Effect versus Multinationals

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  • Toulemonde, Eric

    (University of Namur)

Abstract

We develop a model with two asymmetric countries. Firms choose the number and the location of plants that they operate. The production of each firm increases when trade costs fall. The fall also induces multinationals to repatriate their production into a single country, which is likely to be the large country because of the home market effect. The net effect on total output is favorable in the large country and ambiguous in the small country. We extend the model to endogenize country sizes and we show that in an equilibrium with multinationals only, a rent can be taxed by governments.

Suggested Citation

  • Toulemonde, Eric, 2007. "Home Market Effect versus Multinationals," IZA Discussion Papers 2829, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2829
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    Cited by:

    1. Kenmei Tsubota, "undated". "Location and organization choice of firms," KIER Working Papers 679, Kyoto University, Institute of Economic Research.

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    More about this item

    Keywords

    globalization; economic geography; trade costs; multinational firms; home market effect;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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