Title

Trade costs and the Home Market Effect

Document Type

Journal article

Source Publication

Journal of International Economics

Publication Date

12-2008

Volume

76

Issue

2

First Page

309

Last Page

321

Publisher

Elsevier BV

Keywords

International trade, Test of trade theories, Economic geography, Home Market Effect

Abstract

Most of the theoretical and empirical studies on the Home Market Effect (HME) assume the existence of an “outside good” that absorbs all trade imbalances and equalizes wages. We study the consequences on the HME of removing this assumption. The HME is attenuated and, more interestingly, it becomes non-linear. The non-linearity implies that the HME is more important for very large and very small countries than for medium size countries. The empirical investigation conducted on a database comprising 25 industries, 25 countries, and 7 years confirms the presence of the HME and of its non-linear shape.

DOI

10.1016/j.jinteco.2008.07.006

Print ISSN

00221996

E-ISSN

18730353

Funding Information

Financially supported by ACI - Dynamiques de concentration des activités économiques dans l'espace mondial and to the Swiss National Funds.

Publisher Statement

Copyright © 2008 Elsevier B.V. All rights reserved.

Access to external full text or publisher's version may require subscription.

Additional Information

This article also published as Crozet, M. & Trionfetti, F. (2007). Trade costs and the Home Market Effect. CEPII Working Paper, (2007-05). France: CEPII. Retrieved from http://www.cepii.fr/PDF_PUB/wp/2007/wp2007-05.pdf

Full-text Version

Publisher’s Version

Recommended Citation

Crozet, M., & Trionfetti, F. (2008). Trade costs and the Home Market Effect. Journal of International Economics, 76(2), 309-321. doi: 10.1016/j.jinteco.2008.07.006