The home-market effect and bilateral trade patterns: A reexamination of the evidence

Cong Pham, Mary E. Lovely and Devashish Mitra ()

Chapter 8 in International Economic Integration and Domestic Performance, 2017, pp 135-152 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This paper finds that the evidence for the home market effect (HME) found by Hanson and Xiang (AER, 2004) is sensitive to the way the dependent and the independent variables are constructed. Second, we also find that the HME evidence goes away when we estimate their difference-in-difference gravity model on a truncated sample of positive trade flows. With Eaton–Tamura–Tobit, Heckman, and Helpman–Melitz–Rubinstein estimation of the gravity equation using Hanson and Xiang’s data, we are unable to find any evidence for the HME. Finally, the HME evidence is also absent for a sample of Canadian provinces’ exports to U.S. States. All of our results, taken together, do not reject the existence of the HME in general but rather suggest that the HME results found by Hanson and Xiang may not be robust.

Keywords: International Trade; Foreign Direct Investment; Environmental Standards; Labor Standards (search for similar items in EconPapers)
JEL-codes: F02 (search for similar items in EconPapers)
Date: 2017
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Related works:
Journal Article: The home-market effect and bilateral trade patterns: A reexamination of the evidence (2014)
Working Paper: The home-market effect and bilateral trade patterns: a reexamination of the evidence (2009)
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