A many-location home market effect and a home biased geography

Jordan Norris

Journal of International Economics, 2025, vol. 154, issue C

Abstract: In the presence of scale economies, industries are incentivized to localize production. Geography is key in determining where that localization happens. The Home Market Effect (HME) predicts that locations with the largest demand are the host and become net exporters. Yet, since its origin by Krugman (1980), the prediction has only been shown to hold in two-location models, therefore questioning its generality and empirical relevance. I offer a new formalization of the HME, provide succinct, sufficient conditions for its presence in an arbitrary, many-location geography, and reveal an intimate connection of the HME with a home biased geography. Intuitively, without home bias, consumers don’t buy locally; production is therefore not incentivized to localize near them.

Keywords: International trade; Home market effect; Many-location models; Scale economies (search for similar items in EconPapers)
JEL-codes: F12 R12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:154:y:2025:i:c:s0022199625000133

DOI: 10.1016/j.jinteco.2025.104057

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