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The Home-Market Effect and Bilateral Trade Patterns

The Home-Market Effect and Bilateral Trade Patterns Abstract We develop a monopolistic-competition model of trade with many industries to examine how home-market effects vary with industry characteristics. Industries with high transport costs and more differentiated products tend to be more concentrated in large countries than industries with low transport costs and less differentiated products. We test this prediction using a difference-in-difference gravity specification that controls for import tariffs, importing-country remoteness, home bias in demand, and the tendency for large countries to export more of all goods. We find strong evidence of home-market effects whose intensity varies across industries in a manner consistent with theory. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

The Home-Market Effect and Bilateral Trade Patterns

American Economic Review , Volume 94 (4) – Sep 1, 2004

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Publisher
American Economic Association
Copyright
Copyright © 2004 by the American Economic Association
Subject
Articles
ISSN
0002-8282
DOI
10.1257/0002828042002688
Publisher site
See Article on Publisher Site

Abstract

Abstract We develop a monopolistic-competition model of trade with many industries to examine how home-market effects vary with industry characteristics. Industries with high transport costs and more differentiated products tend to be more concentrated in large countries than industries with low transport costs and less differentiated products. We test this prediction using a difference-in-difference gravity specification that controls for import tariffs, importing-country remoteness, home bias in demand, and the tendency for large countries to export more of all goods. We find strong evidence of home-market effects whose intensity varies across industries in a manner consistent with theory.

Journal

American Economic ReviewAmerican Economic Association

Published: Sep 1, 2004

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