Market size, trade, and productivity reconsidered: poverty traps and the home market effect

Marcus Berliant and Takatoshi Tabuchi ()
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Takatoshi Tabuchi: Chuo University

Economic Theory Bulletin, 2025, vol. 13, issue 1, No 8, 99-124

Abstract: Abstract To investigate questions related to migration and trade, a model of regional or international development is created by altering Melitz and Ottaviano (Rev Econ Stud 75:295–316, 2008) to include a labor market. The model is then applied to analyze poverty traps and the home market effect. We find that in the spatial economics context of migration but no trade, poverty can persist unless population in one region of many is pushed past a threshold. Then growth commences. In the context of trade but no migration, the home market effect holds for a range of parameters, similar to previous literature. However, unlike previous literature, we find that if populations in the countries are large, the home market effect can be reversed.

Keywords: Monopolistic competition; Poverty trap; Home market effect; Labor market clearing (search for similar items in EconPapers)
JEL-codes: F12 R11 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Market size, trade, and productivity reconsidered: poverty traps and the home market effect (2024)
Working Paper: Market size, trade, and productivity reconsidered: poverty traps and the home market effect (2024)
Working Paper: Market size, trade, and productivity reconsidered: poverty traps and the home market effect (2024)
Working Paper: Market size, trade, and productivity reconsidered: Poverty traps and the home market effect (2023)
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DOI: 10.1007/s40505-024-00283-9

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