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Does the Home Market Effect Arise in a Three-Country Model?

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  • Südekum, Jens

Abstract

It is uncertain whether the fundamental 'home market effect' (HME) generalizes from a two-country model to a more realistic setting with multiple countries. We present a three-country version of the seminal model by Krugman (1980) and analyse under which circumstances the HME is present once third country effects are taken into account. We show that both expenditure shifts and exogenous enlargements among foreign countries can rule out the HME.

Suggested Citation

  • Südekum, Jens, 2005. "Does the Home Market Effect Arise in a Three-Country Model?," University of Göttingen Working Papers in Economics 42, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:42
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    More about this item

    Keywords

    New trade theory; home market effect; hub effect;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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