The home market shadow
By: by Jens Suedekum.
Series: Discussion paper ;; no. 1462; Discussion paper (Forschungsinstitut zur Zukunft der Arbeit : Online) ;; no. 1462
Publisher: IZA
Published: 2005
Place of publication: Bonn, Germany
Language: eng
Format: Electronic resource
Subjects: International trade -- Mathematical models.; Terms of trade -- Mathematical models.; Competition, International -- Mathematical models.
Description: "The home market effect (HME) is a distinguishing feature of the "new" theory of international trade, but it is uncertain whether this effect survives if one moves beyond the simplifying setup with only two countries. We present a three-country version of the seminal model by Krugman (1980) and analyse under which circumstances the HME is present once third country effects are taken into account. We show that an exogenous increase in the home country's expenditure level on the modern good will unambiguously lead to an over-proportional output reaction. If production in the foreign world shifts from a more remote to a better accessible economy, industry location in the home country is negatively affected. Thus, if the expenditure increase is small relative to the foreign expenditure shifting, an under-proportional output reaction in the home country can result. In a more extreme case the industry share of the home country can even decrease. This phenomenon is labelled the "home market shadow""--Forschungsinstitut zur Zukunft der Arbeit web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 4/27/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.