Explaining Home Bias in Consumption: The Role of Intermediate Input Trade
David L. Hummels
Purdue University - Department of Economics; National Bureau of Economic Research (NBER)
Russell H. Hillberry
University of Melbourne - Department of Economics; World Bank - Development Research Group (DECRG)
We show that 'home bias' in trade patterns will arise endogenously due to the co-location decisions of intermediate and final goods producers. Our model identifies four implications of home bias arising out of specialized industrial demands. Regions absorb different bundles of goods. Buyers and sellers of intermediate goods co-locate. Intermediate input trade is highly localized. The effect of spatial frictions on trade are magnified. These implications are examined and confirmed using a unique data source that matches the detailed subnational geography of shipments to the characteristics of the shipping establishments. Our results broaden the measurement and interpretation of home bias, and provide new evidence on the role of intermediate inputs in concentrating production.
Number of Pages in PDF File: 33
Keywords: Home bias, trade barriers, intermediate inputs, agglomeration
JEL Classification: F12, F15, R3working papers series
Date posted: March 14, 2002
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.313 seconds