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A Test of Trade Theories when Expenditure is Home Biased

Marius Brülhart and Federico Trionfetti

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: We develop and apply a criterion to distinguish two paradigms of international trade theory: constant-returns perfectly competitive models, and increasing-returns monopolistically competitive models. Our analysis makes use of the pervasive presence of home-biased expenditure. It predicts that countries' relative output and their relative home biases are positively correlated in increasing-returns sectors, while no such relationship exists in constant-returns sectors. We estimate country-level sectoral home biases through a gravity equation for international and intranational trade, and we use those estimates to implement our test on input-output data for six European Union economies.

Keywords: international specialisation; new trade theory; home-market effects; border effects (search for similar items in EconPapers)
JEL-codes: F1 R3 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2001-11
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Related works:
Journal Article: A test of trade theories when expenditure is home biased (2009) Downloads
Working Paper: A test of trade theories when expenditure is home biased (2009) Downloads
Working Paper: A Test of Trade Theories when Expenditure is Home Biased (2005) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:01.11

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