The Home Market Effects in a Home-Biased Geography

Jordan Norris

No 20210072, Working Papers from New York University Abu Dhabi, Department of Social Science

Abstract: A demand-side mechanism for international trade, the Home Market Effect (HME), predicts a more-than-proportional relationship between domestic expenditure and domestic production. Yet, since its inception in the 1980s by Paul Krugman, this theoretical result has only been shown to be generally valid in two-location models. I prove that the HME is maintained in an arbitrary number of locations provided the geography of trade is home-biased: the majority of domestic sales go to domestic consumers. Intuitively, without home bias, increasing domestic expenditure can actually benefit foreign production more, thus causing domestic production to rise by less, violating the more-than-proportional relationship. This result has been overlooked until now because in standard two location models all geographies are necessarily home-biased.

Pages: 37 pages
Date: 2021-09, Revised 2021-09
New Economics Papers: this item is included in nep-geo, nep-int and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://nyuad.nyu.edu/content/dam/nyuad/academics/ ... papers/2021/0072.pdf First version, 2021 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nad:wpaper:20210072

Access Statistics for this paper

More papers in Working Papers from New York University Abu Dhabi, Department of Social Science Contact information at EDIRC.
Bibliographic data for series maintained by Alizeh Batra ( this e-mail address is bad, please contact ).