Does the Home Market Effect Arise in a Three-Country Model?

It is uncertain whether the fundamental ?home market effect? (HME) generalizes from a two-country model to a more realistic setting with multiple 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 both expenditure shifts and exogenous enlargements among foreign countries can rule out the HME.

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Year of publication:	2005
Authors:	Südekum, Jens
Institutions:	Center for European, Governance and Economic Development Research (CeGE), Wirtschaftswissenschaftliche Fakultät
Subject:	New trade theory \| home market effect \| hub effect

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Extent:	application/pdf
Series:	Center for European, Governance and Economic Development Research Discussion Papers. - ISSN 1439-2305.
Type of publication:	Book / Working Paper
Notes:	Number 42
Classification:	R12 - Size and Spatial Distributions of Regional Economic Activity ; F14 - Country and Industry Studies of Trade ; F12 - Models of Trade with Imperfect Competition and Scale Economies
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010980809