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http://ssrn.com/abstract=316799
 
 

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Explaining Home Bias in Consumption: The Role of Intermediate Input Trade


Russell H. Hillberry


University of Melbourne - Department of Economics; World Bank - Development Research Group (DECRG)

David L. Hummels


Purdue University - Department of Economics; National Bureau of Economic Research (NBER)

June 2002

NBER Working Paper No. w9020

Abstract:     
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.

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Date posted: June 21, 2002  

Suggested Citation

Hillberry, Russell H. and Hummels, David L., Explaining Home Bias in Consumption: The Role of Intermediate Input Trade (June 2002). NBER Working Paper No. w9020. Available at SSRN: http://ssrn.com/abstract=316799

Contact Information

Russell H. Hillberry
University of Melbourne - Department of Economics ( email )
Melbourne, 3010
Australia
World Bank - Development Research Group (DECRG)
1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
David L. Hummels (Contact Author)
Purdue University - Department of Economics ( email )
West Lafayette, IN 47907-1310
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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