آنسوی تاثیر بازار خانگی: اندازه بازار و تخصص در جهان چندکشوری

The standard two-country model of international trade with monopolistic competition predicts a more-than-proportional relationship between a country′s share of world production of a good and its share of world demand for that same good, a result known as the ‘home market effect’. We first show that this prediction does not generally carry through to the multi-country case, as production patterns are crucially affected by third country effects. We then derive an alternative prediction that holds whatever the number of countries considered. This new prediction takes into account important features of the real world such as comparative advantage due to cross-country technological differences and lack of factor price equalization.

Since Krugman (1980), general equilibrium models of international trade with increasing returns to scale and trade costs have been associated with what has come to be known as the ‘home market effect’ (henceforth, HME). This effect is generally defined as “a more-than-proportional relationship between a country′s share of world production of a good and its share of world demand for the same good” (Crozet and Trionfetti, 2008, p.2).1 As a result, “countries will tend to export those kinds of products for which they have relatively large domestic demand” (Krugman, 1980, p.955). The basic HME model is traditionally considered to be the one proposed by Helpman and Krugman (1985) in the wake of Krugman (1980). Their setup features two countries and two sectors employing labor as their only input. One sector supplies a freely-traded homogeneous good under constant returns to scale and perfect competition, whereas the other sector produces a horizontally differentiated good under increasing returns and monopolistic competition à la Dixit and Stiglitz (1977). Preferences are Cobb–Douglas across the two goods and symmetric CES across varieties of the differentiated good. For each variety of the differentiated good, fixed and marginal input requirements are constant and identical across countries. International trade in that good is hampered by frictional trade costs of the ‘iceberg’ type, whereas the homogenous good can be traded freely.

In the two-country case the standard model of international trade with monopolistic competition predicts a more-than-proportional relationship between a country′s share of world production of a good and its share of world demand for the same good, a result known as the ‘home market effect’. We have shown that this prediction does not generally carry through to the empirically relevant case in which there are several trading countries differing in terms of centrality and technology. We have then derived a new prediction of the model that does hold for any number of trading countries and any pattern of technological differences. In particular, we have shown that the model predicts a more-than-proportional relationship between a country′s share of world demand and its share of world production only after the influence of centrality and comparative advantage on the latter has been controlled for through a simple linear filter. As this prediction also takes into account technology-driven differences in factor prices across countries, it may prove useful for better identifying home market effects empirically. We keep this for future work.