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Should Small Countries Fear Deindustrialization?

Ai Ting Goh and Tomasz Michalski ()

Review of International Economics, 2010, vol. 18, issue 4, 607-617

Abstract: Will small countries deindustrialize when opening up to trade with large countries? Donald Davis (1998) shows that for the home market effect to lead to deindustrialization of small countries, trade costs for homogeneous goods must be sufficiently smaller than trade costs in differentiated goods, a condition which is not supported by empirical evidence. We show that if differentiated goods production uses tradable inputs small countries can become deindustrialized when trading with a sufficiently large country and if trade costs are low.

Date: 2010
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Working Paper: Should small countries fear deindustrialization ? (2010)
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Working Paper: Should small countries fear deindustrialization? (2009)
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