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Behrens, Kristian
Lamorgese, Andrea R.
Ottaviano, Gianmarco I. P.
Tabuchi, Takatoshi
Year of Publication: 
Series/Report no.: 
Nota di Lavoro 119.2009
The standard two-country model of international trade with monopolistic competition predicts a more-than-proportional relationship between a country's share of world production of a good and its share of world demand for that same good, a result known as the home market effect. We first show that this prediction does not generally carry through to the multi-country case, as production patterns are crucially affected by third country effects. We then derive an alternative prediction that holds whatever the number of countries considered. This new prediction takes into account important features of the real world such as comparative advantage due to cross-country technological differences and lack of factor price equalization.
Comparative Advantage
Home Market Effect
Hub Effect
International Trade
Monopolistic Competition
Multi-country Models
Document Type: 
Working Paper

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