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A Decomposition of the Home-Market Effect

Author

Listed:
  • Toru Kikuchi

    (Graduate School of Economics, Kobe University)

  • Ngo Van Long

    (Department of Economics, McGill University)

Abstract

Although the home-market effect has become one of the most important concepts in both trade theory and the new economic geography, it lacks a compelling graphical representation. The purpose of this note is to offer such a representation. We will decompose the homemarket effect into two steps: a short-run response to population shift, creating entry-stimulating excess profits (in the short run) for firms of the country that experiences a population gain, and a further round of entries into the monopolistic sector of the expanding country induced by exits in the foreign industry.

Suggested Citation

  • Toru Kikuchi & Ngo Van Long, 2010. "A Decomposition of the Home-Market Effect," Discussion Papers 1002, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:1002
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    References listed on IDEAS

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    More about this item

    Keywords

    Monopolistic Competition; Home-Market Effect; Entry-Exit Process;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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