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The reverse home-market effect in exports: a cross-country study of the extensive margin of exports

Hege Medin

Review of World Economics (Weltwirtschaftliches Archiv), 2017, vol. 153, issue 2, 301-325

Abstract: Abstract Do small countries have higher proportions of firms that export in manufacturing industries than large ones? As small countries are well known to be more open than large ones, it may appear uncontroversial to claim that the answer is yes. Nevertheless, this contradicts predictions from many standard trade models positing a home-market effect in the number of manufacturing firms and exporters. In this article, I present a theoretical model where a home-market effect in the number of firms coexists with a reverse home-market effect in the number of exporters: as in standard models, the number of firms in a small country relative to that in a large one is lower than relative income, but, in contrast to standard models, the relative number of exporters is larger. As a consequence, small countries will have higher proportions firms that export in manufacturing industries—a claim I support empirically.

Keywords: International trade; Reverse home-market effect; Firm heterogeneity; Extensive margin of export; Firm-level data; Fractional logit (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 F61 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:spr:weltar:v:153:y:2017:i:2:d:10.1007_s10290-016-0269-6