Testing for the Home Market Effect in Inter-Regional Trade in Korea

Jea-Kyung Kim

Advances in Management and Applied Economics, 2015, vol. 5, issue 1, 5

Abstract: This study attempts to test the HME hypothesis in inter-regional Korean trade. For this purpose, we draw on the multi-regional model recently developed by Behrens et al. (2009). In particular, we utilize Behrens et al.’s (2009) simple linear filter, which allows us to separate the “pure HME†from “the third-country effect†. Our contribution includes converting the theoretical simple linear filter into an empirical framework for testing HME. We apply the empirical linear filter to inter-regional trade data of 100 manufacturing industries for 16 Korean regions. Our tests identify the presence of HME in inter-regional trade and its strength appears to be greater than that observed in the international context of earlier studies. Furthermore, important third-country effects are observed across Korean regions.

Date: 2015
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