Geographical Advantage: Home Market Effect in a Multi-Region World

41 Pages Posted: 21 Feb 2018 Last revised: 7 Feb 2020

See all articles by Kiminori Matsuyama

Kiminori Matsuyama

Northwestern University - Department of Economics

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Date Written: October 11, 2017

Abstract

I propose a theoretical framework for studying the effects of geographical factors on the distribution of industries across many regions. The geographical feature of each region is summarized by a proximity matrix, whose elements measure the closeness between every pair of regions and depend on the parameters representing the transport and other costs of using a variety of trade routes. A change in these costs of trade affects the distribution of industries by amplifying the geographical advantages and disadvantages of regions. Through a series of examples, I demonstrate how this framework can be used not only to examine the effects of an improvement in transport infrastructure, but also to address some problems from economic history, regional economic integration, and the north-south division, and discuss some geopolitical issues.

Keywords: monopolistic competition, multi-region model of costly trade in differentiated goods, home market effect, regional economic integration, uneven development, convergence versus divergence, geographical advantages and disadvantages, proximity matrix, trade routes

JEL Classification: F12, F15, O11, R12

Suggested Citation

Matsuyama, Kiminori, Geographical Advantage: Home Market Effect in a Multi-Region World (October 11, 2017). Global Poverty Research Lab Working Paper No. 17-111, Available at SSRN: https://ssrn.com/abstract=3127030 or http://dx.doi.org/10.2139/ssrn.3127030

Kiminori Matsuyama (Contact Author)

Northwestern University - Department of Economics ( email )

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