The Home Market and the Pattern of Trade : Round Three

Does national market size matter for industrial structure? Round One (Krugman) answered in the affirmative: Home market effects matter. Round Two (Davis) refuted this, arguing that an assumption of convenience - transport costs only for the differentiated goods - conveniently obtained the result. In Round Three we relax another persistent assumption of convenience - industry types differentiated only by the degree of scale economies - and find that market size reemerges as a relevant force in determining industrial structure