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Does home market size matter for the pattern of trade? |
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| Authors: | Thomas J. Holmes John J. Stevens |
| Affiliation: | a Department of Economics, University of Minnesota, 1035 Heller Hall, Minneapolis, MN 55455, USA b Federal Reserve Bank of Minneapolis, 90 Hennepin Avenue, Minneapolis, MN 55480 USA c Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC 20551, USA |
| Abstract: | Does home market size matter for the pattern of trade? Krugman started the literature, showing it does matter. Davis overturned his result, arguing that an assumption of convenience—transport costs only for the differentiated goods—conveniently obtained the result. Here we relax another persistent assumption of convenience—two 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: | Home market Increasing returns |
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