Home market effect, regulation costs and heterogeneous firms

Toshihiro Okubo and Vincent Rebeyrol

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Abstract: This paper studies how market-specific entry sunk costs (regulation costs) affect the Home Market Effect (HME) with firm heterogeneity in marginal costs. our model is based on the Dixit-Stiglitz monopolistic competition model with firm heterogeneity plus regulation costs difference. We find that a regulation costs gap works as dispersion force by inducing a market potential gap, which reduces the HME and could cause the reverse HME or the anti-HME. The HME first rises and then fall in terms of trade openness, whereas the HME rises in terms of regulation costs gap coordination by technical barriers to trade (TBT) agreements. Firm heterogeneity dampens the dispersion force by the regulation costs difference and thus works as an agglomeration force. Firm heterogeneity causes a perfect spatial sorting, in which a large country attracts only high productivity firms, and vice versa.

Keywords: technical barriers to trade; regulation costs; firm heterogeneity; Home market effect; Effet du marché domestique; hétérogénéité des firmes; coûts de régulation; barrières non tarifaires (search for similar items in EconPapers)
Date: 2006-07
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00118871
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Citations: View citations in EconPapers (5)

Published in 2006

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Related works:
Working Paper: Home market effect, regulation costs and heterogeneous firms (2006)
Working Paper: Home Market Effect, regulation costs and heterogeneous firms (2006)
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