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Market size, trade, and productivity reconsidered: poverty traps and the home market effect

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  • Berliant, Marcus
  • Tabuchi, Takatoshi

Abstract

To investigate questions related to migration and trade, a model of regional or international development is created by altering Melitz and Ottaviano (2008) to include a labor market. The model is then applied to analyze poverty traps and the home market effect. We find that in the spatial economics context of migration but no trade, poverty can persist unless population in one region of many is pushed past a threshold. Then growth commences. In the context of trade but no migration, the home market effect holds for a range of parameters, similar to previous literature. However, unlike previous literature, we find that if populations in countries are highly asymmetric, the home market effect can be reversed.

Suggested Citation

  • Berliant, Marcus & Tabuchi, Takatoshi, 2024. "Market size, trade, and productivity reconsidered: poverty traps and the home market effect," MPRA Paper 119993, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:119993
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    References listed on IDEAS

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    2. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
    3. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    4. 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.
    5. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-François Thisse, 2021. "Agglomeration And Trade Revisited," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 3, pages 59-85, World Scientific Publishing Co. Pte. Ltd..
    6. Arnaud Costinot & Dave Donaldson & Margaret Kyle & Heidi Williams, 2019. "The More We Die, The More We Sell? A Simple Test of the Home-Market Effect," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 843-894.
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    More about this item

    Keywords

    Monopolistic competition; Poverty trap; Home market effect; Labor market clearing;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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