Home Market Effect versus Multinationals

Eric Toulemonde

No 2829, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We develop a model with two asymmetric countries. Firms choose the number and the location of plants that they operate. The production of each firm increases when trade costs fall. The fall also induces multinationals to repatriate their production into a single country, which is likely to be the large country because of the home market effect. The net effect on total output is favorable in the large country and ambiguous in the small country. We extend the model to endogenize country sizes and we show that in an equilibrium with multinationals only, a rent can be taxed by governments.

Keywords: globalization; economic geography; trade costs; multinational firms; home market effect (search for similar items in EconPapers)
JEL-codes: F12 F15 F23 R12 R30 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-06
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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Working Paper: Home market effect versus multinationals (2007)
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