Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/57880
Authors: 
Felbermayr, Gabriel
Jung, Benjamin
Year of Publication: 
2012
Series/Report no.: 
University of Tübingen working papers in economics and finance 33
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.
Subjects: 
Home Market Effect
Regional Inequality
Monopolistic Competition
Heterogeneous Firms
Economic Geography
JEL: 
F12
R12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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