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Beyond the home market effect: market size and specialization in a multi-country world

Behrens, Kristian, Lamorgese, Andrea R., Ottaviano, Gianmarco I. P. and Tabuchi, Takatoshi (2009) Beyond the home market effect: market size and specialization in a multi-country world. Journal of International Economics, 79 (2). pp. 259-265. ISSN 0022-1996

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Abstract

The standard two-country model of international trade with monopolistic competition predicts a more-than-proportional relationship between a country′s share of world production of a good and its share of world demand for that same good, a result known as the ‘home market effect’. We first show that this prediction does not generally carry through to the multi-country case, as production patterns are crucially affected by third country effects. We then derive an alternative prediction that holds whatever the number of countries considered. This new prediction takes into account important features of the real world such as comparative advantage due to cross-country technological differences and lack of factor price equalization.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/00221...
Additional Information: © 2009 Elsevier
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
Sets: Departments > Economics
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 20 Feb 2012 16:49
URL: http://eprints.lse.ac.uk/41965/

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