A decomposition of the home-market effect

Toru Kikuchi and Ngo Long

Economics Bulletin, 2010, vol. 30, issue 4, 2759-2768

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 home-market 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: F1 (search for similar items in EconPapers)
Date: 2010-10-26
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Related works:
Working Paper: A Decomposition of the Home-Market Effect (2010)
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