The Home Market, Trade, and Industrial Structure

29 Pages Posted: 11 Nov 2006

See all articles by Donald R. Davis

Donald R. Davis

National Bureau of Economic Research (NBER); Columbia University

Multiple version iconThere are 2 versions of this paper

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 convenience—transport costs only for the differentiated goods—matters 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

Davis, Donald R., The Home Market, Trade, and Industrial Structure (December 1997). FRB of New York Staff Report No. 35, Available at SSRN: or

Donald R. Davis (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Columbia University ( email )

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