Mobile capital and the home market effect

Hajime Takatsuka and Dao-Zhi Zeng ()

Canadian Journal of Economics, 2012, vol. 45, issue 3, 1062-1082

Abstract: Most existing studies examine the home market effect (HME) in a framework with immobile labour as the only production factor and the assumption of a freely traded homogeneous good is known to be crucial for the HME to emerge. This study explores the HME in the presence of mobile capital by use of a footloose capital model allowing for positive transport costs of the homogeneous good. The mobile capital generates a channel to offset the trade imbalance of a country. As a result, the HME always appears for arbitrary transport costs in both sectors of differentiated and homogeneous goods.

JEL-codes: F12 Q17 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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