Finance and Economics Discussion Series (FEDS)
May 2002
The Home Market and the Pattern of Trade: Round Three
Thomas J. Holmes and John J. Stevens
Abstract:
Does national market size matter for industrial structure? Round One (Krugman) answered in the affirmative: Home market effects matter. Round Two (Davis) refuted this, arguing that an assumption of convenience--transport costs only for the differentiated goods--conveniently obtained the result. In Round Three we relax another persistent assumption of convenience--industry types differentiated only by the degree of scale economies--and find that market size reemerges as a relevant force in determining industrial structure.
Keywords: Market size, home market effects, scale economies
PDF: Full Paper
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