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- Title
Identifying the dynamic home market effect in a three-country model.
- Authors
Suedekum, J.
- Abstract
The home market effect (HME) is a distinguishing feature of the “new” trade theory. It is customarily defined as disproportionate positive causation from expenditure to production. Recently it has been argued that this dynamic definition of the HME is problematic in a multi-country framework, because it neglects third country effects. In this paper, we show that more than one exogenous parameter change is needed to overturn the dynamic HME. An isolated increase in the size of the home country will unambiguously lead to an over-proportional domestic industry expansion. We then illustrate with some specific scenario what type of third country effects can “swamp” the HME.
- Subjects
INTERNATIONAL trade; PRODUCTION functions (Economic theory); LABOR demand; REGIONAL disparities in the labor supply; REGIONAL economics; STATICS &; dynamics (Social sciences); MARKET equilibrium
- Publication
Journal of Economics, 2007, Vol 92, Issue 3, p209
- ISSN
0931-8658
- Publication type
Article
- DOI
10.1007/s00712-007-0289-8