Quality Assurance and the Home Market Effect

36 Pages Posted: 20 Aug 2008

See all articles by Ai-Ting Goh

Ai-Ting Goh

HEC Paris - Economics & Decision Sciences

Tomasz Kamil Michalski

HEC Paris - Economics & Decision Sciences

Date Written: June 2008

Abstract

The home market effect is considered as a distinguishing feature of models of trade with increasing returns to scale in production and imperfect competition. However, some empirical studies found the existence of home market effect even in constant returns to scale industries. In this paper we build a model of intra-industry trade based upon quality assurance and show the existence of the home market effect without increasing returns in the production technology. This throws into question the rationale of empirical studies attempting to validate the increasing returns model of trade based upon testing the existence of the home market effect.

Keywords: home market effect, intra-industry trade, quality assurance

JEL Classification: F1, R3

Suggested Citation

Goh, Ai-Ting and Michalski, Tomasz K., Quality Assurance and the Home Market Effect (June 2008). CEPR Discussion Paper No. DP6880. Available at SSRN: https://ssrn.com/abstract=1240190

Ai-Ting Goh (Contact Author)

HEC Paris - Economics & Decision Sciences ( email )

Paris
France
(33 1) 39 67 72 06 (Phone)
(33 1) 39 67 70 85 (Fax)

Tomasz K. Michalski

HEC Paris - Economics & Decision Sciences ( email )

Paris
France

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