A Decomposition of the Home-Market Effect

Toru Kikuchi and Ngo Long

No 1002, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: Although the home-market effect has become one of the most important concepts in both trade theory and the new economic geography, it lacks a compelling graphical representation. The purpose of this note is to offer such a representation. We will decompose the homemarket effect into two steps: a short-run response to population shift, creating entry-stimulating excess profits (in the short run) for firms of the country that experiences a population gain, and a further round of entries into the monopolistic sector of the expanding country induced by exits in the foreign industry.

Keywords: Monopolistic Competition; Home-Market Effect; Entry-Exit Process (search for similar items in EconPapers)
JEL-codes: F12 (search for similar items in EconPapers)
Pages: 9pages
Date: 2010-05
New Economics Papers: this item is included in nep-int
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http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2010/1002.pdf (application/pdf)

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Journal Article: A decomposition of the home-market effect (2010)
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