The Home Market Effect, Regional Inequality, and Intra-Industry Reallocations

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Dateien:
Aufrufstatistik

URI: http://nbn-resolving.de/urn:nbn:de:bsz:21-opus-61344
http://hdl.handle.net/10900/47930
Dokumentart: ResearchPaper
Date: 2012
Source: University of Tübingen Working Papers in Economics and Finance ; 33
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Monopolistische Konkurrenz
Other Keywords:
Home Market Effect , Regional Inequality , Monopolistic Competition , Heterogeneous Firms , Economic Geography
License: Publishing license excluding print on demand
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Abstract:

In New Trade Theory models, the larger region hosts an overproportionate share of producers. This Home Market Effect (HME) exacerbates regional income discrepancies caused by trade frictions or technology differences. With homogeneous firms, it requires inter-industry reallocations to emerge. We present a heterogeneous firms single-sector model with fixed market access costs, in which the HME arises exclusively from empirically more relevant intra-industry reallocations. It is magnified by lower trade costs or higher heterogeneity. In contrast to multi-industry models, a more pronounced HME leads to regional income convergence as adjustment of the firm size distribution counteracts the effects of firmentry.

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