The Home market effect with heterogeneous firms

Ha Nguyen ()
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Ha Nguyen: CREA, University of Luxembourg
Authors registered in the RePEc Author Service: Ha M. Nguyen () and Nguyen Phu Ha ()

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: This paper examines the home market effect in the framework of heterogeneous firms. The paper finds that not only trade costs but also fixed trade costs cause the home market effect and the reverse home market effect can occur as the fixed trade costs are very low. In addition, the magnitude of the home market effect varies with industry characteristics. Industries with low trade costs, high fixed production costs, low fixed export costs, and high productivity dispersion tend to be more concentrated in large countries. Finally, the negative impact of trade barriers on the home market effect is dampened by the elasticity of substitution which is contrary with the result of the homogeneous firm model. An empirical model is built to test these predictions for developed countries. The empirical results are consistent with the predictions of the theoretical model.

Keywords: Home market effect; country size; industry characteristics; heterogeneous firms; firm’s location; market structure (search for similar items in EconPapers)
JEL-codes: F1 R1 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:12-12

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