The Home Market, Trade, and Industrial Structure
29 Pages Posted: 11 Nov 2006
Date Written: December 1997
Does national market size matter for industrial structure? This has been suggested by theoretical work on "home market"effects, as in Krugman (1980, 1995). In this paper, I show that what previously was regarded as an assumption of conveniencetransport costs only for the differentiated goodsmatters a great deal. In a focal case in which differentiated and homogeneous goods have identical transport costs, the home market effect disappears. The paper discusses available evidence on the relative trade costs for differentiated and homogeneous goods. No compelling argument is found that market size will matter for industrial structure.
Keywords: economic geography, home market, transport costs, industrial structure
JEL Classification: F1, O1, R1
Suggested Citation: Suggested Citation