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Intra-National Regional Heterogeneity in International Trade

Author

Listed:
  • Kyoko Hirose

    (Faculty of Economics, Kyushu Sangyo University)

  • Yushi Yoshida

    (Faculty of Economics, Kyushu Sangyo University)

Abstract

We present a two-country model with explicit incorporation of two regions in the home country and one region in a foreign country. Each region consists of two types of workers: skilled workers, freely mobile across domestic regions, are required to set up a firm, whereas unskilled workers are constrained to their own regions. Trade costs accrue both intra-nationally and internationally. International trade costs are assumed to be different among regions. Our model produces a region-based gravity equation and generates heterogeneity among regional exports in terms of responses with respect to economic size. We also find a home-market effect at the regional level. Moreover, we are able to show the relative magnitude of the home-market effect among home regions, in terms of a change in the export share. The magnitude of the home-market effect is larger in a region further away from the foreign country. We empirically test our theoretical hypothesis with an application to the export dataset of Japanese regions. Our empirical results provide strong evidence in support of a region-based home-market effect but weak evidence for a relative home-market effect.

Suggested Citation

  • Kyoko Hirose & Yushi Yoshida, 2010. "Intra-National Regional Heterogeneity in International Trade," Discussion Papers 42, Kyushu Sangyo University, Faculty of Economics.
    • Handle: RePEc:kyu:dpaper:42
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    File URL: http://www.ip.kyusan-u.ac.jp/keizai-kiyo/dp42.pdf
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    References listed on IDEAS

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    Cited by:

    1. Márquez-Ramos , Laura, 2016. "Regionalism, subnational variation and gravity: A four-country tale," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 35, pages 7-36.

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    More about this item

    Keywords

    Home-market effect; International trade; Regional exports; Regional heterogeneity; Trade cost.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • 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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