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Beyond the Home Market Effect: Market Size and Specialization in a Multi-Country World

Kristian Behrens (), Andrea Lamorgese (), Gianmarco Ottaviano () and Takatoshi Tabuchi ()

No 23, KITeS Working Papers from KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy

Abstract: The standard two-country model of international trade with monopolistic competition predicts a more-than-proportional relationship between a country’s share of world production of a good and its share of world demand for that same good, a result known as the ‘home market effect’. We first show that this prediction does not generally carry through to the multi-country case, as production patterns are crucially affected by third country effects. We then derive an alternative prediction that holds whatever the number of countries considered. This new prediction takes into account important features of the real world such as comparative advantage due to cross-country technological differences and lack of factor price equalization.

Keywords: comparative advantage; home market effect; hub effect; international trade; monopolistic competition; multi-country models (search for similar items in EconPapers)
JEL-codes: F12 R12 (search for similar items in EconPapers)
Date: 2009-07, Revised 2009-07
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Related works:
Journal Article: Beyond the home market effect: Market size and specialization in a multi-country world (2009) Downloads
Working Paper: Beyond the Home Market Effect: Market Size and Specialization in a Multi-Country World (2009) Downloads
Working Paper: Beyond the Home Market Effect: Market Size and Specialization in a Multi-Country World (2009) Downloads
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