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Home Market Effect, regulation costs and heterogeneous firms

Toshihiro Okubo () and Vincent Rebeyrol ()

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

Abstract: This paper studies how market-specific entry sunk costs (regulation costs) affect the Home Market Effect (HME) with firm heterogeneity in marginal costs. our model is based on the Dixit-Stiglitz monopolistic competition model with firm heterogeneity plus regulation costs difference. We find that a regulation costs gap works as dispersion force by inducing a market potential gap, which reduces the HME and could cause the reverse HME or the anti-HME. The HME first rises and then fall in terms of trade openness, whereas the HME rises in terms of regulation costs gap coordination by technical barriers to trade (TBT) agreements. Firm heterogeneity dampens the dispersion force by the regulation costs difference and thus works as an agglomeration force. Firm heterogeneity causes a perfectspatial sorting, in which a large country attracts only high productivity firms, and vice versa.

Keywords: Home market effect; firm heterogeneity; regulation costs; technical barriers to trade. (search for similar items in EconPapers)
JEL-codes: F12 F15 R12 R38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-int and nep-reg
Date: 2006-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

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