Should Small Countries Fear Deindustrialization?

11 Pages Posted: 10 Aug 2010

See all articles by Ai-Ting Goh

Ai-Ting Goh

HEC Paris - Economics & Decision Sciences

Tomasz Kamil Michalski

HEC Paris - Economics & Decision Sciences

Abstract

Will small countries deindustrialize when opening up to trade with large countries? Donald Davis (1998) shows that for the home market effect to lead to deindustrialization of small countries, trade costs for homogeneous goods must be sufficiently smaller than trade costs in differentiated goods, a condition which is not supported by empirical evidence. We show that if differentiated goods production uses tradable inputs small countries can become deindustrialized when trading with a sufficiently large country and if trade costs are low.

Suggested Citation

Goh, Ai-Ting and Michalski, Tomasz K., Should Small Countries Fear Deindustrialization?. Review of International Economics, Vol. 18, No. 4, pp. 607-617, September 2010. Available at SSRN: https://ssrn.com/abstract=1654661 or http://dx.doi.org/10.1111/j.1467-9396.2010.00899.x

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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