The Home Market Effect in Models with Multinational Enterprises

Mario Larch

Review of International Economics, 2007, vol. 15, issue 1, 62-74

Abstract: Trade patterns in new trade theory models and agglomeration patterns in new economic geography models crucially depend on the effect that a higher local demand leads to a larger share of production of these products, namely the home market effect. Multinationals can exploit higher foreign demand without incurring transport costs by setting up a plant abroad. This paper demonstrates that in the presence of multinationals the home market effect appears even in cases where it otherwise would not. But it works via a different channel, relying on the repatriation of profits rather than on interindustry trade.

Date: 2007
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https://doi.org/10.1111/j.1467-9396.2007.00673.x

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Working Paper: The Home Market Effect in Models with Multinational Enterprises (2010)
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