Intra-National Regional Heterogeneity in International Trade

Kyoko Hirose and Yushi Yoshida

No 42, Discussion Papers from Kyushu Sangyo University, Faculty of Economics

Abstract: We present a two-country model with explicit incorporation of two regions in the home country and one region in a foreign country. Each region consists of two types of workers: skilled workers, freely mobile across domestic regions, are required to set up a firm, whereas unskilled workers are constrained to their own regions. Trade costs accrue both intra-nationally and internationally. International trade costs are assumed to be different among regions. Our model produces a region-based gravity equation and generates heterogeneity among regional exports in terms of responses with respect to economic size. We also find a home-market effect at the regional level. Moreover, we are able to show the relative magnitude of the home-market effect among home regions, in terms of a change in the export share. The magnitude of the home-market effect is larger in a region further away from the foreign country. We empirically test our theoretical hypothesis with an application to the export dataset of Japanese regions. Our empirical results provide strong evidence in support of a region-based home-market effect but weak evidence for a relative home-market effect.

Keywords: Home-market effect; International trade; Regional exports; Regional heterogeneity; Trade cost. (search for similar items in EconPapers)
JEL-codes: F12 F14 R12 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-05
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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